Why U.S. Stocks Hold Up at 5% Yields: Earnings and Concentration

The U.S. 10-year Treasury yield rose to 5.18%, while the 30-year yield reached 5.47%. Yet the S&P 500 fell only 0.02% on September 24. With Brent crude also at a high level, why did the stock market not collapse?¹²

The reasons an index holds up are not the same as the reasons the entire market is healthy. Earnings expectations and the share prices of a few large companies are supporting the index. On the same day, 8 of 11 sectors declined, and declining stocks were 1.9 times as numerous as advancing stocks. It is too early to conclude that the pressure from interest rates and oil prices has disappeared.²

Treasury yields and the index are compared at the U.S. close on September 24. Spot oil prices use U.S. Energy Information Administration data published through September 22. Oil prices for different dates and products are not combined into a single time series.³

The previous article, What Matters More Than a 5% Yield: Whether AI Profits Become Cash, examined cash collection at individual companies. This article looks at the gap between the index level and the stocks beneath it.

Most of the Rise in Treasury Yields Came From Real Yields

Looking only at high nominal yields makes it easy to assume that inflation concerns have surged again. But comparing U.S. Treasury data for the same maturities one month apart shows a different picture.¹⁴

1bp is 0.01 percentage point. Treasury yields are not the transaction price of a single bond on an exchange. They are constant-maturity yields calculated from quotations in the Treasury market.

The 10-year nominal yield rose 48 basis points, while the 10-year real yield based on Treasury Inflation-Protected Securities rose 47 basis points. The simple difference between the nominal and real yields was almost unchanged, moving from 2.32% to 2.33%. This difference includes liquidity and risk premia as well as inflation expectations. It should not be read as a pure measure of expected inflation.⁴

What matters for equities is that the real discount rate has increased. Investors now require a higher return when calculating the present value of earnings far in the future. This table alone cannot show whether real yields rose because of stronger growth expectations, Treasury supply and demand, or a reassessment of the risk of holding long-term bonds.

Earnings Expectations Are Temporarily Offsetting Lower Valuation Multiples

At a simple level, an equity index equals expected earnings per share multiplied by the multiple investors are willing to pay for those earnings. Higher interest rates can reduce that multiple. If earnings expectations rise at the same time, the index can remain in place.

FactSet found that the 2026 earnings-per-share estimate for the S&P 500 rose 6.1% from the end of June through the end of August. Full-year earnings estimates increased in 7 of 11 sectors. The last observation in this data was August 31, so it cannot be assumed to reflect the full rise in yields in late September.⁵

Reuters reported on September 24 that the S&P 500 was trading at less than 19 times expected earnings and that AI-related megacaps had driven much of the recent increase in earnings expectations. This helps explain why the index is holding up. It is not evidence that earnings growth has spread across a broad range of companies.²

For example, if expected earnings rise 10% while the valuation multiple falls 10%, multiplying the two effects produces a price decline of about 1%. This is an illustrative calculation. It does not mean the market has actually priced in 10% for each variable.

Sectors and Stocks Fell Beneath a Flat Index

The S&P 500 is weighted by market capitalization. Larger companies have a greater effect on the index.⁶ Comparing the September 24 index close with the moves beneath the surface narrows the meaning of the claim that stocks held up.

All three observations come from Reuters’ September 24 tally.² One day of weak market breadth is not enough to declare a bear market. But one index is also not enough to conclude that the market has fully absorbed the effect of high interest rates.

The strongest counterargument is that companies are growing fast enough to withstand high interest rates. If that is true, the number of advancing stocks should increase over time, and earnings expectations in non-energy sectors should hold. If only the index holds up while earnings downgrades and new lows spread, today’s flat market may instead be delaying the visible impact of the shock.

Oil Must Be Separated by Level, Direction and Where the Profits Accrue

High oil prices are a cost for consumers and energy-intensive companies. At the same time, they can create revenue opportunities or pricing power for production, refining, transportation and storage assets. The price of crude oil alone does not determine which companies benefit.

EIA spot-price data show that WTI fell from $107.02 per barrel to $96.41 between September 15 and 22, while Brent fell from $130.80 per barrel to $114.89. Prices remained high, but they declined within the same spot-price series.³ The Brent futures price of about $107 reported by Reuters on September 24 refers to a different date and product. The two values should not be connected directly to calculate a rate of decline.²

U.S. equity indexes recovered from their intraday lows on September 24 after reports of the possibility of phased negotiations between the United States and Iran. The market may expect future supply relief. Reports of negotiations are not confirmation that oil transportation and supply have actually recovered.²

There is also no reason to look only at crude producers. Refineries could benefit if refining margins and throughput improve together, while pipelines and export facilities could benefit if volumes and contracted rates hold. If high capital costs delay construction of new facilities, assets that are already permitted and operating may become scarcer. This is an investment hypothesis. Outages, regulated rates and high maintenance costs could erase the benefit.

The Next Verdict Will Come From the Breadth of Earnings and Financing

Four questions must now be assessed together.

1. Will earnings expectations for non-energy companies hold if real yields rise further? Higher earnings at energy companies can conceal margin declines in transportation, consumer goods and industrials.
2. Are the index and the average stock rising together? The market-cap-weighted index, the equal-weighted index, advancing and declining stocks, and new lows should be examined together.
3. When oil prices fall, does actual supply also recover? The checks should include transportation volumes, refining margins, product inventories and companies’ ability to pass through costs, as well as futures prices.
4. Can companies fund the necessary investment with their own cash? Operating cash flow, capital expenditure, refinancing maturities and interest expense must be assessed together. Existing assets create value only when their returns on investment exceed the cost of capital.

If earnings expectations hold across sectors and market breadth improves, the current resilience in share prices can be reassessed as genuine strength. If non-energy earnings decline while real yields remain high and credit costs also rise, the index’s stability may be concealing risk. The current evidence does not establish either path.

Korean equities require the same distinctions. A stable U.S. index does not verify orders, cash collection or current prices at related companies. Investors must examine separately where each company captures profits and how it funds investment.

This analysis is for informational purposes and is based on public sources. It is not a recommendation to buy or sell any security. Prices and disclosures after the data cutoff should be checked separately.