The Bond Market’s Warning

Higher oil prices and rising bond yields are creating a near-term threat to market breadth, but strong AI-related earnings and improving industrial demand continue to support equities.

• The 5% yield threshold has been crossed from the 5-year to the 30-year segment after volatile oil prices, a September 25-basis-point rate hike, stronger global PMI data, and increased expectations of another hike in December, now above 80%.
• After remaining short duration for several years, the firm sees the rise in yields as an opportunity to extend duration at increasingly attractive levels.
• Equity leadership remains concentrated in the largest technology stocks: many companies outside the technology giants trade below their 200-day moving averages, while the capitalization-weighted S&P 500 and Nasdaq remain near highs.
• S&P 500 earnings are projected to grow by more than 30% in 2026 and 15% in 2027, with technology and energy major contributors; the 2026 estimate was only 14–15% at the start of the year.
• Recent conversations with short-cycle industrial companies point to accelerating demand, while higher rates, energy costs, possible diesel shortages, and uncertainty around the Strait of Hormuz could still squeeze margins.

Takeaway: The firm favors extending bond duration and views industrial stocks more positively after their pullback, but warns that narrow market participation, higher input costs, oil-market risks, and technology-sector debt leave the broader market vulnerable.