After a week of renewed concerns about inflation and surging bond yields, the biggest takeaway for U.S. risk asset bulls might be that it's no big deal.

This week, U.S. Treasuries were sold off, with yields across the board rising, and the U.S. 10-year Treasury yield increased by about 15 basis points, reaching its highest point since July.

However, the U.S. stock market has shown resilience, with the Nasdaq 100 Index rising by 0.1% for the week, approaching the historical high set on July 10th. On Friday, the "technology seven sisters" collectively rose, chip stocks mostly increased, and AI concept stocks had more gains than losses...

Analysts believe that the main drivers of stock market returns are still ample liquidity, policy easing, and good economic and earnings growth. The rise in bond yields does not necessarily have a negative impact on stock market rebounds.

However, the sharp increase in U.S. Treasury yields has also raised market concerns, with market sentiment becoming tense. Yesterday, the VIX fear index closed up 6.55%.

Almost every market is increasing hedging activities. According to a report from Bank of America, investors transferred funds into cash funds at the fastest pace in four weeks. Recently, the issue of overvaluation in the U.S. stock market has sparked intense discussion. This week, the rise in U.S. Treasury yields has led analysts to worry that the valuation of the U.S. stock market may be further pushed higher.

Advertisement

Strong economic data has pushed up U.S. Treasury yields.

Denitsa Tsekova and Isabelle Lee believe that strong economic data remain the main reason for the rise in U.S. Treasury yields and the basis for the market's bullish sentiment towards other assets.

This week, U.S. macro data performed strongly, with unemployment benefit claims, durable goods orders, and consumer confidence reports all pointing to a resilient economy. Citigroup's economic data better-than-expected indicator has improved for three consecutive months, returning to its highest level since April.

According to Wall Street reports, about two-thirds of companies currently reporting earnings have exceeded market expectations. Wall Street analysts predict that S&P 500 companies will achieve earnings growth of 14% in 2025 and 12% in 2026.Rising U.S. Treasury Yields Do Not Necessarily Have a Negative Impact on the U.S. Stock Market

Currently, the rise in U.S. Treasury yields has led some analysts to increasingly worry about the overvaluation of the U.S. stock market, believing that the stock market may be further pushed higher. However, other analysts believe that the rise in U.S. Treasury yields does not necessarily have a negative impact on the U.S. stock market, as the stock market's returns mainly depend on the market's expectations for corporate earnings.

Marija Veitmane, a senior multi-asset strategist at State Street, said:

"The main drivers of stock market returns remain ample liquidity, policy easing, and good economic and earnings growth. We believe that the rise in bond yields does not necessarily have a negative impact on the stock market rebound."

Jake Schurmeier, a portfolio manager at Harbor Capital Advisors, also said:

"The simple answer is earnings—expectations for the current quarter and subsequent quarters suggest healthy growth. As long as this continues, focusing on all the things that could go wrong is too extravagant."

Hedging in Every Market

Although the U.S. stock market still shows resilience, it is clear that it is no longer as calm as in August and September—U.S. Treasury bonds have become more volatile, and the ICE BofA MOVE Volatility Index has seen the largest monthly net increase since the early stages of the pandemic.

Hedging activities in almost every market have increased significantly. There is a large gap between the implied volatility and actual volatility of U.S. Treasury and stock markets, indicating that market sentiment has become tense, and stock investors have begun to reduce their positions. According to a report from Bank of America, investors transferred funds to cash funds at the fastest pace in four weeks.