Rising Treasury yields and a 93% probability of a Fed rate hike are reshaping U.S. equity markets, forcing investors toward defensive sectors like consumer staples as technology and financials struggle.
Treasury yields have reached levels not seen since 2007, creating a valuation headwind for U.S. equities.
The two-year yield is trading roughly one percentage point above the Fed funds rate, historically leading Fed policy.
Oil prices are rising, which is keeping the energy sector relatively strong.
Energy remains one of the stronger U.S. equity areas as oil prices continue to rise.
Financials have started to turn lower as higher rates affect the sector.
Technology is moving sideways within the weakening quadrant of the relative rotation analysis.
Utilities are weakening as higher borrowing costs weigh on the heavily indebted sector.
U.S. consumer staples have started to turn higher, signaling a defensive shift in positioning.
StoneCastle Investment Management's Bruce Campbell warns that 10-year Treasury yields have reached 2007 levels, creating significant valuation headwinds for U.S. equities. As bond yields climb, sector leadership is shifting, with energy stocks showing resilience while financials and utilities face pressure from rising borrowing costs.
Higher yields increase borrowing costs for companies and make fixed-income assets more attractive relative to stocks, which compresses equity valuation multiples.