The Zhitong Finance App noticed that the US stock market is facing a familiar problem. Although earnings in the first quarter were better than expected, it has been difficult for the market to continue to rise, as rising US Treasury yields weighed down the popularity of the stock market, reminding investors of the 2023 period when rising yields caused the stock market to plummet.

Michael Kantrowitz, chief investment strategist at Piper Sandler, said on Friday, “Rising yields are now a systemic problem in the stock market.”

Kantrowitz mentioned the market trend over the past month, which can be simplified to a basic formula: when US bond yields rise, the stock market falls. Recently, bond yields have soared. Since the beginning of April, the 10-year US Treasury yield has risen more than 40 basis points to 4.63%, the highest level since November 2023. The S&P 500 fell about 3% during this period.

Kantrowitz said, “Looking at it now, it is really difficult for the stock market to rise without falling interest rates.”

Two-year US Treasury yields also showed the same trend. Evercore ISI's Julian Emanuel marked 5% as a key technical level that dragged down the stock market during last year's bond sell-off. Notably, the US stock market recently retreated from its April high, just as the two-year yield hit 5%. On Monday, the two-year Treasury yield was 4.98%.

At a time when US bond yields are rising, investors have drastically reduced their bets on the Federal Reserve cutting interest rates this year. According to the data, the market expected to shift from cutting interest rates nearly seven times to cutting interest rates only about once in 2024. Morgan Stanley Chief Investment Officer Mike Wilson said on Sunday that unless Federal Reserve Chairman Powell “unexpectedly shows a dovish stance” during Wednesday's press conference, upward pressure on yields is likely to continue.

Economists don't expect this to happen when Powell speaks, given the recent boom in inflation data.

Bank of America economist Michael Gapen said, “The main message we expect from the press conference is that it will take more time for policies to take effect.” “Powell should indicate that the next step is still likely to be to cut interest rates, but the Federal Reserve will adopt a wait-and-see model until it gains the necessary confidence on the inflation issue.”

This would be a repetition of Powell's previous remarks, which did not bring much relief to the bond market.

Higher yields also help explain why the S&P index fell nearly 3% this month, although the first-quarter earnings season so far has been better than expected. The earnings of the S&P 500 index constituents were 9% higher than the expected average for the quarter, the highest level since 2021, but the stock price reaction was “lackluster.”

Wilson of Damo said, “We believe this is due to high interest rates putting pressure on valuations.”

Strategists don't think this trend will change anytime soon.

David Kostin, chief US stock strategist at Goldman Sachs, said: “Although 'longer and higher' interest rates are not necessarily an insurmountable obstacle to the stock market, if interest rates continue to rise, some parts of the stock market are more likely to lag behind.” “Most notably, stocks with weak balance sheets generally didn't perform well.”

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