Stocks keep climbing even as Treasury yields rise, with the Nasdaq closing Monday at a new record high. Strong Q2 GDP growth and accelerating S&P 500 earnings are driving the resilience, though rate-sensitive sectors still face pressure from higher borrowing costs.
The Nasdaq gained 1.05% on Monday and closed at a new record high, even as elevated Treasury yields usually make it harder to justify high stock valuations. Higher yields push up the cost of refinancing debt and funding new projects, so the rally looks out of step with the backdrop. But other forces are offsetting that pressure.
Growth and earnings keep outrunning rates
Underlying growth has stayed resilient. Q2 2026 GDP growth was revised up to 2.2% from 1.5%, and early data for the third quarter looks even more encouraging despite slower job creation. As a result, S&P 500 earnings are expected to grow 29.5% year over year in Q3 2026, which would mark the third straight quarter of growth above 25%.
That earnings pace also eases the case that stocks are overvalued. The S&P 500's forward P/E has fallen this year even as earnings have continued to rise, so investors still have reason to prefer stocks over bonds if growth keeps justifying current valuations.
Higher oil prices cut both ways
Energy costs usually hurt consumers, but the US's shift into a net oil exporter changes the equation. According to a NBER study cited in the report, higher oil prices can boost incomes, consumption, and investment while improving the country's terms of trade. Upcoming earnings reports should show whether that benefit holds for tech firms that depend on chips, and whether bottlenecks in the Strait of Hormuz could disrupt chip production by affecting helium supplies.
Rate-sensitive sectors stay exposed
Rising yields still raise the stakes for weaker borrowers. As yields climb, companies with heavy debt loads face higher costs to refinance, and real estate and utilities are particularly vulnerable to that pressure. Investors weighing corporate bonds are better off favoring companies with stronger balance sheets.
Source: Investinglive
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