S&P 500 Warned of 15-20% Correction as 10-Year Yield Approaches 5%

Warnings have emerged that the S&P 500 could face a correction of 15-20% if U.S. long-term Treasury yields continue to rise. The increase in long-term rates is putting pressure on technology stocks and expectations for AI investments, raising the discount rate burden on risk assets. Philip Colmar, a global strategy partner at MRB Partners, diagnosed in a client report that the rise in long-term Treasury yields is pushing the stock market to a point just before a 'de-risking phase.' This week, the yield on the U.S. 10-year Treasury surpassed 4.7%, while the 30-year yield exceeded 5.2%. Colmar warned that if the 10-year yield approaches 5%, the S&P 500 could decline by 15-20%. He stated that if rates continue to rise and the upward trend does not stop, a de-risking event could begin. De-risking refers to the movement of investors to reduce their exposure to risk assets, which occurs when economic, interest rate, and liquidity variables worsen in the stock market. Long-term rates do not only affect the bond market; investors view them as a risk-free return and compare them to expected returns on stocks. When rates rise, the present value of future profits decreases, and the required return on growth stocks increases. This burden may be more pronounced in AI-related stocks, and the rise in long-term rates could also impact virtual assets like Bitcoin. The market is closely watching whether the 10-year Treasury yield approaches 5% and whether the expansion of Treasury buybacks leads to stability in long-term rates.

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