U.S. Treasury Yields and Oil Prices Could End the Stock Market Rally

[The Financial News]  
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Analysts say the threshold that could end the NYSE bull market is a 5% yield on the U.S. 10-year Treasury note and international oil prices of $115 per barrel.
22V Research, known for its technical analysis, warned on the 19th local time that this threshold is not far away and that investors should take a cautious approach.
According to CNBC, Dennis DeBusschere, chief market strategist at 22V Research, said in a research note that the conclusion was based on a survey of investors.
In the survey, investors said the NYSE bull market would end if the U.S. 10-year Treasury note yield surged to 5% or oil prices broke above $115 per barrel, triggering "demand destruction." They also said the bull market would end if U.S. Gross Domestic Product (GDP) growth stayed below 1% for several quarters.
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The yield on the U.S. 10-year Treasury note stood at 4.687% that day, the highest level since January last year.
DeBusschere warned that a 5% yield could be surpassed quickly if the Strait of Hormuz, a key shipping route for oil and natural gas around the world, does not reopen soon.
He said, "The unusual surge in the 10-year yield over the past week is increasing tail risk," and added, "The only economic unknown so far is how severe this supply disruption will be and how long it will last, and some of it is already breaking down."
DeBusschere also warned that if 10-year Treasury yields swing sharply, as they have recently around the world, investors will begin to worry that "something bad may happen."
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Another factor that could end the bull market is high oil prices, especially Brent Crude Oil prices rising above $115 per barrel.
International oil prices fell slightly that day, but Brent Crude Oil still remained above $110 per barrel.
As of the close on February 18, Brent Crude Oil had surged more than 54% since the start of the Iran War on February 28.
DeBusschere said that if Brent Crude Oil breaks above $115 per barrel, demand destruction would force oil consumption lower, the economy would slow, and the bull market would eventually end.
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Peter Oppenheimer, head of global equity strategy at Goldman Sachs, said the main backdrop supporting the current bull market is the strong U.S. GDP growth rate.
As long as that growth momentum continues, he said, the bull market will continue as well.
Goldman Sachs expects U.S. GDP growth, which came in at 4.7% last year, to rise further to 5.9% this year. Oppenheimer said the unusually strong earnings gains in the technology and energy sectors are behind that optimistic outlook.
However, Oppenheimer noted that the communications, media and technology sectors account for 85% of this year’s gains in the S&P 500 Index. He said inflation, which could hurt the outlook for those sectors, will be a key variable for the stock market going forward. If inflation overheats, he added, the market could also turn sharply lower.
Oppenheimer warned that the recent surge in Treasury yields amid inflation concerns poses a "meaningful risk" to the stock market.
He said the stock market is being supported by strong earnings, but if growth and inflation come under pressure, the trend could reverse very quickly.
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dympna@fnnews.com Song Kyung-jae Reporter