Mounting tensions in the Middle East are sending shockwaves through financial markets, driving oil prices to $100 a barrel and pushing U.S. Treasury yields to levels not seen since January 2025 — and investors are growing increasingly nervous about what that means for stocks.
Oil hit the $100-per-barrel mark for the first time since May this week, as renewed fighting rekindled fears of major supply disruptions tied to a near-shutdown of shipping traffic through the Strait of Hormuz. By Friday, prices had pulled back slightly to just under $100.
The surge in oil costs has fueled inflation worries, leading many to believe the Federal Reserve may need to raise interest rates again. That pressure pushed the yield on the benchmark 10-year U.S. Treasury note to 4.71% — its highest reading since January 2025.
Jack Ablin, chief investment officer at Cresset Capital, says investor confidence is starting to crack. “I think investors did a pretty good job of shrugging off the initial phase of hostility … but the light at the end of the tunnel optimism appears to be dimming,” he said.
Ablin has a specific threshold in mind when it comes to bond yields. “I kind of draw a line in the sand at four and three quarters on the 10-year,” he said, warning that a move above 4.75% would meaningfully hurt stock valuations. The reason: higher interest rates make future corporate profits appear less valuable in today’s dollars, reducing the attractiveness of owning stocks.
Kristina Hooper, chief market strategist at Man Group, shares those concerns. She pointed out that 30-year yields have reached levels not seen in years and could go even higher given ongoing inflation fears, questions about U.S. fiscal sustainability, and the continued conflict in the Middle East. Hooper identifies 5% on the 10-year yield as a key psychological barrier. “That doesn’t mean that we won’t see pressure before then, but to me, that is a psychological level that can be quite impactful,” she said.
Despite the turbulence, U.S. stocks have proven surprisingly resilient so far this year. The S&P 500 reached new record highs as recently as early June, buoyed by strong corporate earnings and optimism tied to artificial intelligence-related spending. Solid retail sales figures and a healthy job market had also helped ease earlier fears of stagflation.
Still, Matthew Maley, chief market strategist at Miller Tabak + Co, cautioned in a recent note that with yields now hitting new highs for the year, “it’s something that will likely create at least some headwinds before too long.”
Higher yields don’t just make bonds more attractive compared to stocks — they also make it more expensive for businesses and consumers to borrow money, which can slow economic growth. One area of particular concern is big technology companies, known as hyperscalers, that have committed to massive capital spending plans. Peter Graf, chief investment officer at Amova Asset Management Americas, questioned whether those plans would hold up under the weight of higher borrowing costs. “It’s going to look a little different to the CEOs of hyperscalers today … is it worth it for them to do the capex they were planning if they have to pay higher interest rates to finance it?” he said.
Even so, Graf and several other analysts are not ready to recommend dumping stocks. He believes the market is overestimating how aggressively the Fed will act, noting that futures markets are currently pricing in about two quarter-point rate hikes before year’s end. “I don’t see why the Fed would respond hawkishly and fuel the fire at this point, given that the data that we’ve seen doesn’t look too bad from their perspective,” Graf said.
Michael Purves, chief executive officer at Tallbacken Capital Advisors, echoed that measured view. “If you can’t really make a credible bear case that $100 oil and $4.50 gas is really going to destroy the earnings trajectory, then it’s hard to make a bear case on the equity market,” he said.
