Oil and 5.3% Treasury yields pull stock futures off record highs before earnings season

Thursday's futures decline came with a lower 10-year yield than Wednesday's. Quartz had the yield up about 6 basis points at 5.326% on Wednesday as Dow futures shed 201 points ^[4][3]. Yahoo Finance had it at 5.28% on Thursday morning ^[6], about 4.6 basis points lower ^[17], and Dow futures fell further anyway ^[5]. Take Wednesday's 6-point rise back out and the 10-year finished Tuesday near 5.27% ^[18]. Tuesday was the session of the first S&P 500 close above 7,800 ^[7]. So the index set its record at a yield about 1 basis point from Thursday's ^[20].

The 30-year bond moved in step with the 10-year. The gap between them was 38 basis points on Quartz's Wednesday figures and 38 again on Yahoo's Thursday figures ^[19]. Yahoo called the backdrop a global bond rout, with yields near multidecade highs reflecting tightening financial conditions ^[6].

Both publishers start the chain with crude. Quartz wrote that rising oil prices pulled Treasury yields higher ^[10], and cited The Wall Street Journal on Houthi strikes against Saudi Arabia keeping Middle East tensions elevated ^[9]. Yahoo described Thursday as a tug-of-war between earnings optimism and inflation worries revived by oil ^[11]. Inflation is the reason the Fed gave in September ^[1], when it raised rates for the first time since 2023 ^[2].

On the other side is FactSet's estimate that S&P 500 earnings grew 29.5% in the third quarter. If that holds, it would be the third straight quarter above 25% ^[12]. Compared with the rest of the world, the US selling has been shallow. On Wednesday S&P 500 futures were off 0.2% ^[3] while Germany's DAX fell 1.3% and Italy's FTSE MIB 1.9% ^[13], and South Korea's Kospi dropped nearly 2% ^[14].

If oil keeps climbing and the 10-year breaks above Wednesday's 5.326% ^[4], a 29.5% quarter can still lose to a higher discount rate. If crude stalls and earnings beat, the index can make new highs with the 10-year in the 5.2s, as it did on Tuesday ^[18]. The Fed can also move yields on its own, whatever oil does.

I think oil, through what it implies for inflation and the next Fed decision, matters more to this rally than the yield level does. Tuesday's record came with the 10-year near 5.27% ^[18]; Thursday's decline came with it at 5.28% and Yahoo pointing at oil-driven inflation worries ^[6][11]. The opposing case is that the level does bind, and that Tuesday was a one-day relief move inside a rout that had further to go. A new S&P 500 high with the 10-year above 5.33% would show my view is too cautious about earnings. A further slide with Brent falling and yields flat would break the oil explanation and put the pressure on valuation itself.