Every time I open the news lately, Treasury yields are somewhere in the headlines. This time the 10-year yield hasn't just risen. It has reached a level we haven't seen in almost 19 years, since 2007.
It sounds like someone else's bond-market problem, but it connects directly to stock prices and loan interest. So let's go through it step by step.
✦ The 10-year yield's September climb
Three new highs in a single month
Let's start with how far it has climbed. On September 15, the US 10-year Treasury yield touched 5.04% intraday, clearing its 2023 high, and closed at about 5.00%, the highest close since 2007.
It kept going: 5.11% on September 23, then 5.23% intraday on Friday, September 25. That's three fresh highs in one month.
The yield hit 5% in October 2023 too, but it came back down quickly. This time there is more than one cause behind the move, so the situation is different.
✦ Three forces behind the surge
Taking them one at a time
The first cause is oil. The US–Iran standoff is keeping crude prices high, and that raises fears of inflation flaring up again.
Late last week, news that President Trump rejected Iran's ceasefire terms pushed oil higher, and bond yields rose with it.
The second cause is the sheer volume of new bonds. A Macquarie strategist said heavy government and corporate issuance has become a bigger driver of yields this year, and AI-related borrowing is adding to the supply.
When more bonds are up for sale, prices fall and yields rise.
✦ The Fed's September decision
First hike since July 2023
Date September 16
Move +0.25 percentage points
New range 3.75–4.00%
Vote 12–0, unanimous
Outlook One more hike this year (median projection: 4.00–4.25%)
The third cause is the Fed. On September 16 it raised the policy rate by 0.25 percentage points to 3.75–4.00%.
All 12 voting members agreed, and it was the first hike since July 2023.
In the Fed's projections, the median official expects one more hike this year, taking the rate to 4.00–4.25%.
So how is the stock market reacting? Every time yields jump, the indexes wobble. On Monday, September 28, the Dow fell more than 300 points early on as Treasury yields weighed on stocks, CNBC reported.
Even so, the S&P 500 is still up more than 10% this year and sits around 7,700. Rate-sensitive sectors like financials, consumer discretionary and real estate are lagging, while energy and technology are carrying the index.
Why do higher yields weigh on stocks? If you can safely earn over 5% from Treasuries, you need a higher expected return to take on the risk of stocks. That makes stock prices feel expensive.
US stocks have justified their high prices with low interest rates for years, and Forbes pointed out that this justification is weakening.
✦ Year-end S&P 500 targets, in one chart
Simple average of the 9 forecasters in this post · axis shows only 6,800–8,400
Yellow line = current S&P 500 around 7,700 · percentages are versus the current level · lower than today: Bank of America (year-end target) and MRA's Dean Curnutt (if a pullback comes) · median year-end target 8,000
Let's get the big picture first. Averaging the year-end S&P 500 targets of the nine forecasters covered here gives about 7,970, with a median of 8,000. That's roughly 3.5% above the current 7,700 area.
Eight of the nine sit above the current level. Only Bank of America is lower, at 7,400. Add Macro Risk Advisors' Dean Curnutt, who warned of a pullback to 6,900–7,100, and two forecasters see lower levels than today.
Bob Parker and RBC's Lori Calvasina also warned of pullbacks of 5–10% along the way. This average covers only the forecasters in this post, so it may differ from the true market consensus.
Now back to the question in the title: how far could the market fall? Opinions on Wall Street are quite split, so let's take the cautious side first.
✦ Bears vs. bulls
Where each camp sees the S&P 500 going
The most notable warning comes from Dean Curnutt of Macro Risk Advisors. He says the S&P 500 could pull back 8–10% if the Fed hikes, with a possible second leg down in December. From 7,700, that works out to roughly 6,900–7,100.
RBC's Lori Calvasina also sees a dip toward 7,000, pointing to pullbacks seen in past hiking periods. Bob Parker of the International Capital Markets Association warned that a 10-year yield of 5.5% could trigger a 5–10% pullback.
Some forecasters set low year-end targets. Bank of America's year-end S&P 500 target is 7,400, among the lowest on Wall Street. Ed Yardeni cut his from 8,400 to 7,900.
It wasn't because earnings got worse. A yield near 5% shrinks the valuation multiple, and he raised the odds of his bear scenario from 20% to 30%.
The bulls are far more numerous. Among the latest targets, Goldman Sachs, Morgan Stanley and JPMorgan have year-end S&P 500 targets of 8,000, Citi, UBS and Oppenheimer 8,100, and RBC 8,150. That's roughly 4–6% above the 7,700 area.
Their biggest argument is earnings. Per FactSet, second-quarter S&P 500 earnings grew more than 50% year over year, the fastest pace since Q2 2021. Alphabet and Amazon inflated that with investment valuation gains, though. Excluding both, growth was 32%.
Goldman's Ben Snider says stocks usually struggle when hikes begin, but he expects the bull market to continue on solid earnings and balance sheets. The market has already priced in more than three hikes over the next year.
Morgan Stanley's Mike Wilson says stocks can handle rising rates when they reflect strong growth. He did add a warning of a 10% pullback if the inflation shock is bigger than expected.
✦ Hiking cycles and bear markets
The 12 S&P 500 bear markets since 1945, per Bloomberg
History is worth a look too. Bloomberg counted 12 bear markets of 20% or more since 1945, plus four near-misses of 18–20%. Six of those 12 bear markets followed a hiking cycle straight into recession.
So what matters more than one or two hikes is whether the hikes keep coming and whether the economy rolls over.
✦ Where higher yields hurt
Mortgages and the federal budget
It isn't only a stock-market problem. Freddie Mac's survey put the 30-year fixed mortgage rate at 7.03% as of September 24, up from 6.95% a week earlier.
The CBO projects federal interest costs this year at about $1 trillion, more than the roughly $885 billion for defense. That's a real burden for anyone taking out a mortgage.
Well then, let's turn our eyes to Korea. Korean stocks have been the talk of the world lately because of their wild swings, and they feel this yield story more sharply than almost anyone.
✦ The KOSPI's rise and fall this year
From a record high to below 7,000
On September 28, the first session after the Chuseok holiday, the KOSPI fell 2.70% to close at 6,889.74, breaking back below 7,000. Foreign investors sold more than 3 trillion won, while individuals bought more than 3 trillion won.
Daishin Securities said the surge in US Treasury yields limited risk appetite. Reports also said trading activity had cooled to its lowest level this year.
The KOSPI hit a record close of 9,114.55 on June 22, then entered a bear market on July 8. It's now about 24% below that peak.
Even so, it's still up close to 60% this year. It has climbed a lot, and it is swinging hard from that height.
The main reason it swings this hard is that Samsung Electronics and SK hynix make up nearly half of the KOSPI's weight. Foreign reports say that share has grown sharply from about a quarter at the end of last year.
On September 28, Samsung fell 5.43% to 270,000 won and SK hynix fell 5.05% to 1,768,000 won. On July 2, a US chip-stock rout spread to Korea and both dropped more than 9% in a single day.
✦ Samsung vs. SK hynix: Q3 checkpoints
Market expectations ahead of October earnings
Their earnings themselves are strong. According to FnGuide, Q3 operating profit is expected at about 105.6 trillion won for Samsung and 74.1 trillion won for SK hynix, close to 190 trillion won combined.
Estimates are 4–5% lower than three months ago, but Seoul Economic Daily attributes that to the currency effect on dollar sales, not a weakening memory market.
The key is HBM4, the sixth-generation high-bandwidth memory that pairs with AI chips. Samsung expects its Q3 HBM4 revenue to more than triple from the previous quarter.
SK hynix has to show it can carry its HBM3E lead into the next generation. There were also reports that Samsung plans to double HBM4 output next year.
What's left to worry about is speed. Mirae Asset Securities expects Samsung's DRAM average selling price to rise 16.5% in Q3 but only 5.4% in Q4.
Even if prices keep rising, a slower pace could reignite the "is this the peak?" debate, according to Seoul Economic Daily. On the other hand, more long-term supply contracts could smooth out the swings in earnings.
✦ KOSPI targets from 8 brokerages
Simple average · axis shows only 6,000–13,000
Yellow line = current KOSPI around 6,890 · percentages are versus the current level · all eight are above today's level · median 11,000 · Korean four average about 10,425 (+51%), global four about 11,125 (+61%)
Now the brokerage forecasts. I gathered KOSPI targets from eight firms, domestic and foreign. Overseas: Goldman 12,000, JPMorgan 12,500 (12-month basis), Nomura 11,000, Morgan Stanley 9,000. Domestic: Samsung Securities 12,600, Korea Investment & Securities 11,000, Daishin 9,300, Shinhan Investment 8,800.
The simple average is about 10,775, roughly 56% above the current KOSPI level of around 6,890, and the median is 11,000. All eight sit above the current level. Even the lowest, Shinhan Investment, is 28% higher.
Domestic brokerages, though, are cutting targets. Daishin lowered its target from 11,500 to 9,300, and Shinhan Investment from 11,000 to 8,800. Daishin cited higher US yields and the prospect of further Fed tightening as reasons for lowering its price-to-earnings multiples.
The domestic four average about 10,425 and the overseas four about 11,125, so the foreign houses are more optimistic.
Short-term views are far more cautious. Kiwoom Securities put a 6,800–7,250 range in early September, Daishin sees 6,500–7,200 for October, and iM Securities expects a box around 7,000. The targets are high, but they expect the index to stay near current levels for now.
The targets came out between May and September, and their time frames (year-end, 12-month) differ by firm. Since the index has fallen since then, they could be revised again.
In the end, the KOSPI's direction depends on Samsung's and SK hynix's earnings and on US yields. The Q3 reports in October will be the first test.
✦ This week's checkpoints
Releases that could steer yields
There's a lot to check this week. On Wednesday, September 30, the August PCE price index, the Fed's favorite inflation gauge, comes out. Core inflation is expected at 0.3% month over month, and a higher print could strengthen the case for another hike in October.
Friday brings the September jobs report. For reference, ADP's August private payrolls rose only 38,000, below expectations and the weakest since January.
Looking at the S&P 500 year-end targets alone, most forecasters sit above or near the current level, but plenty see an 8–10% pullback taking the index toward 7,000 along the way.
Whether that pullback turns into a bear market depends on whether inflation gets under control, oil stabilizes, and jobs and growth hold up. For now I'll keep an eye on inflation data, jobs data and oil, and for Korean stocks, Samsung's and SK hynix's Q3 earnings too. If anything important comes up, I'll share it.
This isn't investment advice. You know that, right? Look after your own hard-earned money.
Well then, shall we begin today's adventure?
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