Market Pulse

Global equities paused this week as rising bond yields challenged the early year rotation trade. The S&P 500 traded near 5,120, largely flat on the week, while the Nasdaq Composite underperformed as Treasury yields moved higher. The U.S. 10 year yield climbed toward 3.98 percent following stronger than expected labor data, reinforcing the view that the Federal Reserve may delay further easing. Markets are now pricing roughly one 25 basis point cut for 2026, down from two just a week ago.

European equities held up better, with the STOXX 600 gaining modestly on improving industrial production data. Emerging markets were mixed as a firmer dollar weighed on Asian equities. The dollar index moved back above 103 as rate differentials widened.

Credit spreads remained contained, signaling that investors are not yet pricing growth stress. Oil traded near $80 per barrel, supported by supply constraints and winter demand, while gold pulled back slightly as real yields rose.

For you as an investor, the message is clear: equity resilience is now increasingly tied to earnings durability rather than liquidity tailwinds. Rising yields are reintroducing valuation discipline across sectors.

Deep Dive

The most important development this week is the upward move in long term yields. After ending 2025 with expectations of steady monetary easing, markets are now reassessing that narrative. Strong payroll growth and stable wage data suggest that economic momentum remains intact, reducing urgency for rapid rate cuts.

When the 10 year Treasury yield approaches 4 percent, equity valuations come under scrutiny. Higher yields increase the discount rate applied to future earnings, which disproportionately impacts high growth technology stocks. That explains the relative underperformance of long duration equities this week. At the same time, sectors with near term cash flows such as financials and energy have demonstrated greater resilience.

You should pay attention to real yields, not just nominal yields. Inflation expectations have remained stable near 2.3 percent, meaning the rise in nominal yields reflects higher real rates rather than inflation fears. Higher real yields tighten financial conditions and can weigh on speculative positioning.

Corporate earnings season, beginning next week with major financial institutions, becomes even more critical in this environment. Consensus expects S&P 500 earnings growth of roughly 8 to 10 percent year over year for the fourth quarter. If earnings confirm resilience, equities can absorb moderately higher yields. If margins compress, valuation multiples could face additional pressure.

Strategically, you should consider balancing growth exposure with sectors that benefit from stable or slightly higher rates. Financials, select industrials, and energy may provide relative insulation. At the same time, avoid overreacting to short term yield volatility. The broader macro backdrop still reflects solid growth and moderating inflation. The key for you is to align sector exposure with earnings visibility rather than relying on rate cuts to drive returns.

Quick Insights

• The U.S. 10 year Treasury yield rose toward 3.98 percent, reducing expectations for multiple Fed cuts in 2026.

• The dollar index moved above 103, pressuring emerging market equities and commodities at the margin.

• Oil remains near $80 per barrel, supported by winter demand and supply discipline from major producers.

• S&P 500 fourth quarter earnings are expected to grow near 9 percent year over year, making guidance critical for equity stability.