Analysis: U.S. Treasury yields have surged to near 20-year highs, yet U.S. stocks have remained resilient amid headwinds, with AI serving as a key pillar of support.

Despite the U.S. 10-year Treasury yield climbing to a nearly 20-year high, U.S. stocks have remained resilient, with the S&P 500 index seeing no notable impact. This divergence has prompted investors to re-examine the historical relationship between surging bond yields and stock market performance. Historical experience shows that rising yields do not necessarily trigger stock market declines. In 1994, the Federal Reserve’s rate hikes triggered a bond market sell-off, pushing the S&P 500 down roughly 8% at one point, before the index clawed back losses as the economy and corporate earnings held up. In 2016, markets viewed rising yields as a sign of economic recovery and policy normalization, leading U.S. stocks to rise in tandem with Treasury yields. By contrast, the Fed’s aggressive rate hikes in 2022 weighed on both bond and stock markets, resulting in a sharp drop for the S&P 500. In 2026, U.S. stocks are facing a similar scenario of rising yields paired with resilient economic growth. Large-scale investments in AI infrastructure by tech firms are supporting the economy and stock market, while a U.S.-Iran deal that could push oil prices lower may also ease inflationary pressures. However, bearish views argue that the Fed may need to keep raising rates until stocks and broader financial conditions are sufficiently tightened. Bank of America interest rate strategist Meghan Swiber noted that current strong performance in stocks and other risk assets has not yet sent the Fed a clear signal that demand is slowing.