S&P 500 hits record as falling yields and earnings forecasts both lift stocks

On the day itself, the bond move was small. The 10-year yield fell 3.2 basis points, from about 5.311% to 5.279% ^[2][15] (Quartz had it down 2 basis points, at 5.29% ^[4]), and the S&P 500 rose 0.58% to 7,818.93 ^[1]. On its own, that pairing makes equities look like a rate trade, but the chip stocks do not fit it. If a lower discount rate were the main input, I'd expect long-duration semiconductor names to rise together. SK hynix fell 6.39% and Micron 1.73% that session ^[6], while Broadcom gained 3.67% and AMD rose 2.80% after chief executive Lisa Su said the company plans to significantly expand chip supply next year to meet AI demand ^[5].

The 10-year had touched its highest level since April 2002 the session before these records ^[4]. Taking the longer view, stocks stumbled earlier this year when yields spiked, then recovered on renewed excitement over artificial intelligence. Since then, yields and stock prices have risen in tandem, Quartz reported, citing the Wall Street Journal ^[9].

Earnings have a forecast attached. The London Stock Exchange Group projects third-quarter net profit at S&P 500 companies up 30.6% from a year earlier, with energy and technology posting the largest gains ^[7]. Seoul Economic Daily credited those expectations, alongside the yield dip, for the advance ^[14]. Neither source includes a price-to-earnings multiple, so the index level cannot be split cleanly between the two inputs. In a simple discounted-cash-flow model, though, a 30.6% change in profit moves the numerator far more than 3.2 basis points moves the discount rate ^[7][2]. AI spending also shows up in customs data. The August trade deficit widened 13.7% to $105.6 billion, the largest since March of last year, as imports of semiconductors and industrial machinery rose sharply alongside AI infrastructure investment ^[10].

The case that rates are in charge still has evidence behind it. Lisa Shalett, investment chief at Morgan Stanley Wealth Management, told clients bond markets have been turbulent for six weeks, citing a possible shift in the Federal Reserve's policy framework, the path of economic growth and rising oil prices amid the Middle East conflict ^[11]. "Nevertheless, while intraday implied volatility has risen, the six-week stretch has not reached the extremes that catalyzed the 2022 equity bear market," Shalett wrote ^[12]. The Fed's latest move was a rate increase ^[13]. The 2-year yield, at 4.795%, sits 48.4 basis points below the 10-year ^[3][16].

If third-quarter results land near 30.6% and stocks hold while yields climb back, earnings are carrying the index. Should results land and stocks fall anyway as the 10-year returns to its highest level since April 2002, rates are setting the ceiling, as they did when stocks stumbled earlier this year ^[4][9]. A miss would leave the records resting on AI enthusiasm and a 3.2-basis-point dip ^[2]. I think the first outcome is the most likely, because stocks and yields have already risen together for months ^[9]. The view is wrong if the index falls on rising yields during a reporting season that meets the forecast. That season begins in earnest on October 13, when JPMorgan and the other large Wall Street banks report ^[8].