On December 26, the Financial Associated Press reported (editor: Xiaoxiang) that this Wednesday, the US stock and bond markets had a holiday closure due to the Christmas holiday. Recent performance of the US market shows that US Stocks (S&P 500 and Nasdaq), USD, and Treasury yields seem to be rising together. However, there is skepticism among many industry insiders about whether these three major markets can maintain a similar synchronization, especially regarding the stock market.

A well-regarded market observer said on Monday that the stock market may need the cooperation of US Treasury and USD in order to continue rising smoothly.

Tom Essaye, founder of Sevens Report Research, noted in this week's report that based on recent trading levels, the USD currently poses only a "slight" resistance to the US Stocks, while the 10-year Treasury yields form a "moderate" resistance. However, if the USD and Treasury yields rise further from now, it will cause greater trouble for US Stocks.

Essaye believes that the movements of US Treasury and USD may be key to whether the stock market can stabilize next.

He wrote: "In summary, a calm currency and bond market is a necessary condition for the stock market to continue rising, and what we saw last week was quite the opposite (both USD and Treasury yields rose sharply)."

"The sooner the Treasury and USD stabilize—declines in 10-year Treasury yields and the USD will be more beneficial for the US stock market, and some reassuring data or statements from the Federal Reserve promising to continue lowering rates may help achieve this goal," Essaye stated.

Looking at recent trends, the 10-year US Treasury yield briefly surpassed 4.6% this Tuesday, reaching its highest level since the end of May. The bond yield has an inverse relationship with price movements. Meanwhile, the ICE USD Index (DXY), which measures the USD against a basket of six major currencies, reached its highest level in over two years.

Despite the quiet trading environment before the Christmas holiday and the seasonal Bullish effect of the 'Santa Claus rally', the US stock market held up against these pressures this week. However, it remains to be seen whether the market can continue to rise after the holiday. The major stock indexes closed lower on a weekly basis last week, with the Dow still in negative return territory for the month so far.

Long-term rising yields are usually seen as unfavorable for the stock market, mainly because it makes it more difficult to justify excessively high stock valuations. Higher yields mean a lower present value of future profits.

Meanwhile, some strategists pointed out that the US Treasury yield curve completely ended its inversion last week (the 3-month Treasury yield has also begun to fall below the 10-year Treasury yield). In other words, the yield curve has fully restored its normal shape, with long-term yields higher than short-term yields. This could also have implications for the stock market.

Lisa Shalett, Chief Investment Officer of Morgan Stanley Wealth Management, believes that the end of the inversion between the 3-month and 10-year Treasury yield curves signifies that investors may finally realize - the low inflation, high growth model that has driven economic growth for the past 15 years is giving way to a nominal growth model driven by reflation.

Shalett wrote: 'This indicates that long-term stock valuations will eventually be pushed down.'

Editor/ping