Oil Above $106 Tests Stocks as Treasury Yields Hold Near 5%

Stocks are under pressure as surging oil and a United States 10 Year Treasury Yield above 5% weigh on risk appetite. The bigger question now is whether oil and longer-maturity yields can cool after tomorrow’s Federal Reserve decision and give the S&P 500 room to continue higher.

In One Minute

West Texas Intermediate Crude Oil (WTI) has pushed above $106, while the United States 10 Year Treasury Yield (US10Y) reached 5.04%, its highest level since 2007. The Federal Reserve now has a 92.5% probability of raising rates by 25 basis points tomorrow, but I think a firm, hawkish message could actually push longer-maturity yields lower. Meanwhile, the S&P 500 Index (SPX) is still holding its critical 7,570 to 7,575 support zone, keeping the near-term bullish structure alive. The key relationship is simple: if oil pauses or pulls back and Treasury yields ease, stocks have room to rally.

The Setup

Oil is the main driver right now.

Higher oil prices increase inflation pressure because energy and transportation costs eventually work their way through the economy. Diesel is especially important because trucks depend on it to move goods, and diesel continues making new record highs. Those higher transportation costs can eventually be passed on to consumers.

That inflation pressure is also pushing Treasury yields higher. Investors buying government debt want enough return to compensate for inflation, especially with roughly $40 trillion in United States debt and continued questions about whether the Federal Reserve will stay committed to controlling prices.

This is where tomorrow gets interesting.

The Federal Reserve controls the short end of the interest rate market, but investors have much more control over the 10-year, 20-year, and 30 Year maturities. If the Federal Reserve raises rates and stays firmly focused on inflation, investors may become more comfortable owning longer-maturity Treasury debt. Bond prices could rise, which means longer-maturity yields could fall even as the Federal Reserve raises its policy rate.

What Changed

The United States 10 Year Treasury Yield reached 5.04%, breaking above the 2023 high and reaching territory not seen since 2007. It has since pulled back toward 5.00%, with another reading at 5.012%.

The important technical level remains 5.02%, the previous 2023 high. As long as the 10 Year Yield does not close above that level, I still favor a pullback in yields over the coming days and weeks.

West Texas Intermediate Crude Oil traded as high as $106.54, then pushed to approximately $106.62, and later continued holding around $106.50.

Technically, oil has completed a measured move. It is also approaching the 0.786 Fibonacci retracement, calculated from the 52-week high to the recent low. Those two technical signals are lining up in roughly the same area.

That is why I am short West Texas Intermediate Crude Oil, and I added to that short position today. The setup does not guarantee a reversal, but oil is now reaching an area where I want probability working in my favor rather than chasing an already extended move.

The S&P 500 is also giving us an important signal.

The key support zone remains 7,570 to 7,575. The index tested that area again today and continues to hold above it.

The structure is still an upward move followed by sideways consolidation. That remains a bullish pattern as long as support holds. If oil and Treasury yields begin pulling back, that would give the S&P 500 a much cleaner path to continue higher.

Digital Assets and Crypto

Bitcoin (BTC) is also sitting around an important technical area.

I added a very small long position around $76,000 because Bitcoin reached a technical level I was watching. This is intentionally a small position, not an aggressive commitment.

There is also some broader context here. I previously had a $5 million long crypto position during the earlier breakout, and that move worked well. Today’s Bitcoin position is much smaller because the market is now waiting on several larger catalysts.

Bitcoin also ties into the broader risk setup. If the S&P 500 moves higher while oil and Treasury yields pull back, Bitcoin could benefit from that improvement in risk appetite.

At the same time, the Clarity Act later today remains a separate crypto catalyst that could affect Bitcoin regardless of what happens in stocks and bonds.

Why It Matters

These markets are connected.

Oil rising above $106 keeps inflation pressure elevated. Higher inflation makes investors demand higher Treasury yields. Higher Treasury yields create tighter financial conditions and put more pressure on stocks.

But that relationship can also work in reverse.

If oil begins cooling and the Federal Reserve delivers a rate increase with a firm inflation message, confidence in longer-maturity Treasuries could improve. Bonds could rally, longer-maturity yields could fall, and that would remove some of the pressure currently sitting on equities.

That is why the Federal Reserve raising rates tomorrow does not automatically mean the 10 Year Yield has to go higher.

The problem would be oil continuing to surge. If West Texas Intermediate Crude Oil rises another $3 to $5, longer-maturity yields could eventually be forced higher again regardless of the initial Federal Reserve reaction.

Key Levels

The two levels that matter most to the broader market are 5.02% on the 10 Year Treasury Yield and 7,570 to 7,575 on the S&P 500. If yields remain contained while the S&P 500 keeps defending support, the bullish equity setup remains intact.

Bull Case

The bullish path starts with oil cooling.

West Texas Intermediate Crude Oil is sitting near a completed measured move and the 0.786 Fibonacci retracement, so a pullback from this area would reduce some of the inflation pressure pushing Treasury yields higher.

Then the Federal Reserve needs to raise rates and maintain a firm message on inflation. If that restores confidence in longer maturity Treasury debt, the 10 Year Yield could move lower even though short term rates rise.

The S&P 500 then needs to continue holding 7,570 to 7,575. That would keep the sideways consolidation intact and favor a continuation higher.

Bitcoin could participate if that combination improves overall risk appetite, with the small position around $76,000 already established.

Bear Case

The biggest risk remains oil.

If West Texas Intermediate Crude Oil continues higher by another $3 to $5, inflation pressure increases again. Even if the Federal Reserve initially pushes longer-maturity yields lower, rising oil could eventually force those yields back up.

A sustained move in the 10 Year Yield above the 5.02% 2023 high would also weaken the pullback thesis, especially after the recent push to 5.04%.

For stocks, the critical risk is the S&P 500 losing 7,570 to 7,575. That support is what keeps the current near-term bullish structure intact.

Bitcoin remains a small position because the broader macro picture and the Clarity Act can still create volatility.

What to Watch Next

Tomorrow’s Federal Reserve decision is the immediate catalyst.

The market currently puts the probability of a 25 basis point increase at 92.5%, so the rate increase itself is not the only thing that matters. The tone afterward is just as important.

I want to see whether the Federal Reserve stays firmly focused on inflation and whether that produces the expected relief move in longer-maturity Treasury yields.

I am also watching whether West Texas Intermediate Crude Oil finally reacts to its measured move and 0.786 Fibonacci area, whether the 10 Year Yield can remain below 5.02%, and whether the S&P 500 continues defending 7,570 to 7,575.

For Bitcoin, I am watching the reaction around $76,000, the broader stock market response, and the Clarity Act later today.

Bottom Line

Oil is still controlling this market.

If West Texas Intermediate Crude Oil begins pulling back and the Federal Reserve restores confidence in the bond market, the 10 Year Yield has room to move lower, and the S&P 500 has room to build on its bullish consolidation. If oil keeps running, that relationship becomes much harder because inflation pressure will eventually push longer-maturity yields higher again.

For now, the levels are clear: $106.50 area oil, 5.02% on the 10 Year Yield, 7,570 to 7,575 on the S&P 500, and roughly $76,000 on Bitcoin.

There is no reason to guess ahead of the confirmation. Let the Federal Reserve decision, oil, and these technical levels tell us which side actually takes control.