The greatest challenge to the bull market in the US stock market! Analyst: there is still room for further increase in US bond yields

The significant rise in US Treasury yields in December poses a serious challenge to the incoming Trump administration. Behind the Republican Party's sweeping victory in the November election is the dissatisfaction among voters with the US economy. However, a more pressing issue may arise on January 20th, the inauguration day: how to ease Wall Street's concerns that Trump's "pro-growth" agenda may worsen the burden of US debt. The Trump team may need to spend a significant amount of effort convincing the "bond vigilantes" who have been selling off US bonds recently to believe that the country's fiscal outlook will not deteriorate sharply. A report released on Friday by the credit research firm CreditSights, led by Chief Strategist Zachary Griffiths, stated, "We believe there is still room for further increase in US Treasury yields." The benchmark 10-year US Treasury bond yield rose to 4.596% on Friday, marking the largest annual increase since the bond market sell-off in 2022. This yield level is significant for the economy as it serves as the benchmark interest rate for mortgages, car loans, and corporate borrowing. Higher Treasury yields may pose resistance to the stock market as it weakens the present value of future earnings, making it difficult to sustain high valuation levels. The Evercore ISI strategist team recently stated that the rise in Treasury yields poses the greatest challenge to the stock market bull market, warning that a 10-year Treasury yield exceeding 4.75% could trigger a "longer, deeper stock market correction." The recent steepening of the US Treasury yield curve indicates that the market is not only concerned that policy rates may remain high in the long term, but also pessimistic about the country's fiscal outlook. The CreditSights team pointed out that despite a decline in economic surprise indices, the December increase in Treasury yields was more driven by concerns about deficit-related fiscal policies rather than unexpected economic data. Neil Dutta, head of economics at Renaissance Macro Research, believes that the rise in yields is mainly driven by concerns about the deficit, imbalance in debt supply and demand, and the reduction of the Fed's balance sheet. In addition, the rise in bond yields in overseas markets such as Japan and the UK has also had spillover effects on the US bond market. In the US, political conflicts have also come to the forefront. On Friday, Republican Mike Johnson of Louisiana won the House Speaker election by a narrow margin. However, internal discord within the Republican Party may threaten Trump's plans to push through tax cuts, tariffs, and immigration restrictions. Despite a strong performance in the US stock market in 2024, it showed weakness in the past week. According to FactSet data, the blue-chip Dow Jones Industrial Average rose by 0.8% on Friday, ending a five-day losing streak; the S&P 500 rose nearly 1.3%, and the Nasdaq Composite Index climbed nearly 1.8%. However, with the continued rise in Treasury yields, the future market faces high uncertainty.