Higher Treasury yields, a direct consequence of ongoing international maneuvers, are burdening national consumers with more expensive loans and mortgage rates, according to the University of Michigan’s long-running survey of consumers. This occurs as sentiment among the populace is at record lows. Meanwhile, Wall Street futures gained on hopes of a Middle East peace deal, signaling a clear divergence between elite financial interests and the economic reality for ordinary citizens.
Treasury yields fell Tuesday as bond markets returned from a Memorial Day break, catching up with large declines seen in European sovereign yields on Monday. The yield on the 10-year U.S. Treasury note, a key benchmark for U.S. government borrowing, moved lower by more than 8 basis points to 4.485%. The 2-year Treasury note yield, which more closely tracks short-term Federal Reserve interest rate policy, dropped 7 basis points to 4.057%. The longer-dated 30-year Treasury bond yield declined more than 7 basis points to 5.009%. European bonds gave some gains Tuesday as investors weighed mixed signals around the status of U.S.-Iran peace talks.
Elite Gains Amidst Geopolitical Maneuvers
The S&P 500 on Friday clinched its eighth straight weekly gain, the index’s longest winning streak since 2023. This market surge was fueled by strong corporate earnings and enthusiasm for Artificial Intelligence, allowing investors to overlook concerns about the ongoing conflict with Iran. Corporate America continues to post robust profits, with the S&P 500 set to post the highest quarterly earnings growth rate since 2021, according to FactSet. First-quarter earnings growth is expected to be about 29% year-over-year, an increase from a prior estimate of 16.1%. The market’s gains are concentrated in a narrow set of technology and AI-related stocks, further highlighting how a select few benefit from these economic conditions. President Donald Trump’s "One Big Beautiful Bill Act" and its tax cuts have also contributed to pushing shares higher. Since the war with Iran began, the S&P 500 is up about 8.6%, while an equal-weighted version of the S&P 500 is up less than 1%, demonstrating the uneven distribution of these gains.
Sovereignty Under Pressure
Despite President Donald Trump indicating in a Truth Social post that a peace agreement could be in sight, with negotiations "proceeding nicely," the situation on the ground remains volatile. U.S. forces carried out what Central Command described as "self defense" strikes in southern Iran early Tuesday. Concurrently, Secretary of State Marco Rubio, currently in India, asserted that the Strait of Hormuz will ultimately have to be opened "one way or the other," signaling potential international pressure on a sovereign nation's control over strategic waterways. Iran's Islamic Revolutionary Guard Corps stated Tuesday it would retaliate against violations of the ongoing ceasefire after identifying and engaging U.S. drones and an F-35 jet fighter that entered the country's airspace, directly challenging national sovereignty.
Looking ahead, investors will be monitoring a slew of economic data, including April's personal consumption expenditures report, the Federal Reserve's preferred measure for assessing inflation. Bank of America forecasts a 0.4% increase from March and a 3.8% increase in headline PCE year-on-year. Unemployment in April was unchanged at 4.3%, while a core measure of the Consumer Price Index that strips out food and energy rose 2.8% year-over-year in April. If core CPI heats up to more than 3% year-over-year in the coming months, higher yields are likelier to pressure stock prices, potentially impacting the narrow market gains. Investors and strategists stated the market can digest higher yields if the economy keeps growing well, but intensifying inflation fears and bond market volatility could outweigh the positive outlook on economic growth, further burdening the national populace.