The AI-fueled resilience of the world’s most-watched stock indexes is masking a widening retreat across financial markets, as elevated oil prices and borrowing costs take their toll.
Yields on 10-year US Treasuries approached 5.4% this week, their highest since 2002, as Brent crude hovered above $100 a barrel, stoking fears of a prolonged inflation shock. The price of money is rising across much of the world, sending UK borrowing costs to a 19-year high and adding to the pressure on French government debt.
For all the turmoil, the big equity benchmarks have proved resilient. The S&P 500 hit a record on Tuesday, stumbled over the next two sessions amid fears over AI demand, then bounced back Friday as traders looked ahead to another bumper earnings season. It remains within striking distance of its peak.
Enduring economic growth is allowing investors to look past rising yields and geopolitical upheaval. But the market’s ability to absorb the shock depends heavily on where investors are looking. Barely a third of S&P 500 members are trading above their 50-day moving averages, a widely watched gauge of near-term breadth. The picture is even starker for the interest-rate-sensitive Russell 2000, where just 27% of its small-cap constituents are above that threshold.
Bonds issued by the weakest borrowers yield about 15%, a punishing hurdle for companies that need to refinance. US high-yield corporate spreads have widened in recent days, and a junk-bond ETF has dropped to around its lowest levels since last spring’s tariff-war-fueled selloff.