Rising Treasury Yields Pressure Stocks as the Dollar Weakens

Stocks are under pressure this morning as Treasury yields remain elevated, with S&P 500 Index (SPX) futures down just under 0.5% after selling continued overnight. The bigger issue is the unusual combination of rising long-term yields and a weakening U.S. Dollar Index (DXY), which is tightening financial conditions and putting the bond market at the center of today’s discussion.

What I want you focused on first is interest rates, because that is still the main reason the market is under pressure.

The issue is not that earnings are suddenly terrible or that something major has broken in the economy. The U.S. 10 Year Treasury Yield (TNX) and U.S. 30 Year Treasury Yield (TYX) have continued pushing higher, and they moved up substantially overnight. Since around 3 AM EST, yields have moderated somewhat, and that helped S&P 500 Index (SPX) futures find a short-term bottom around 3 to 4 AM EST.

Higher interest rates make borrowing more expensive. That matters when the United States has roughly $40 trillion in debt, but it also affects companies borrowing heavily to finance artificial intelligence investment, along with mortgages, car loans, and credit throughout the economy.

S&P 500 futures are down just under 0.5%, continuing the weakness from the last couple of days.

Technically, the S&P 500 is still inside a megaphone pattern. The important thing is simply which side breaks first. If price clears the upper trend line, the major upside resistance area is 8100 to 8200, with 8,182 also identified as a potential target. That is roughly another 5% to 6% higher from the referenced levels.

On the downside, 7350 is the level that concerns me much more. If the S&P 500 comes down to 7350 and breaks it, that would suggest something more serious is changing.

Now connect that with the U.S. Dollar Index (DXY). The dollar remains below its recent breakdown level while Treasury yields are rising. Normally, higher yields associated with tighter Federal Reserve policy would also help the dollar. Instead, we have the dollar weakening while investors demand higher yields on U.S. government debt.

The U.S. 30-Year Treasury Yield reached as high as 5.337 this morning before pulling back. It is still higher on the day, and you have to go back to 2007, before the financial crisis, to find comparable levels.

The U.S. 10-Year Treasury Yield is also fractionally higher, although it has backed away from its highs. There is some bullish consolidation developing there, and if that produces another move higher, it could put additional pressure on stocks.

We also have Federal Reserve minutes at 2 PM. Three dissenters at the previous meeting wanted to raise rates. What matters is how strongly they felt about another increase and whether other policymakers were close to joining them. But the bigger point is that yields are already moving higher without the Federal Reserve raising rates. The bond market can tighten financial conditions on its own.

Moving into commodities, West Texas Intermediate Crude Oil (WTI) is fractionally lower today after moving higher yesterday. Oil remains inside its wedge, so until one of those trend lines breaks, I still view it as range-bound. Natural Gas (NG) is fractionally higher, but 283 remains the important level. Unless price gets above 283, there is no confirmed breakout.

Gold (XAU) is pulling back slightly after a strong session yesterday. What I want to see now is whether this develops into bullish consolidation over the next several days. If it does, that could set up another move higher.

Silver (XAG) is still struggling with its longer-term resistance trend line. It broke out of its wedge, retraced, cleared the first trend line, and then ran directly into the second one. There may also be a bull flag developing, but there is not enough information yet to assign additional levels to it.

In technology, Baidu, Inc. (BIDU) is getting hit hard after missing both earnings and revenue expectations. The important support area is around $92, with a gap fill near $91. There are several previous pivot points in that area, and those levels have marked important lows over many years. It can still move lower, but this is becoming an interesting bounce area.

SanDisk Corporation (SNDK) and Micron Technology, Inc. (MU) are also reversing after yesterday's strong moves. SanDisk is down $110 in premarket trading. If the decline continues, the first gap fill is at $1,640, which is a potential day trade level. The next gap fill is at $1,530.

Home Depot, Inc. (HD) was fractionally higher after earnings. It closed around $338 yesterday and is trading near $345 today. The more important level is $355, where a descending trend line creates resistance. Until it reaches that area, there is not much to do.

And finally, Bitcoin (BTC) is pulling back slightly after yesterday's solid move higher. Bitcoin already broke above its trend line and consolidated above that breakout. What I want now is a small down day or a flat session, not a large downside reversal. The most bullish outcome would be a close around $64,000 or higher. Bitcoin is currently only fractionally above $64,000, so the breakout is still intact, but buyers now need to prove they can hold it.

Right now, Treasury yields remain the main pressure point. Stocks, commodities, technology, and Bitcoin all have setups developing, but this is still a market where patience matters more than chasing price.