In an article for MarketWatch, Jamie Chisholm discusses whether stocks can still rally despite the recent surge in bond yields following a spate of positive economic data. Fixed income enjoyed strong performance for most of the first-half of the year, however the asset class gave up a portion of these gains in June as it became clear that the Fed was not done hiking rates given resilience in inflation data and the jobs market.

However, Chisholm warns that as yields get above these levels, they have a tendency to become a headwind for equities. He cites Mark Newton, the chief technical strategist at Fundstrat, who believes that bonds are due for a bout of strength. He believes this pullback in yields will fuel the next leg higher in equities. 

Newton believes that yields will find resistance at these levels and sees more risk of a breakdown in yields rather than a sustained breakout to new highs. He also believes the market is going in the wrong direction in terms of over-rating the Fed’s hawkishness in response to recent data. As evidence, he cites trader positioning which shows that the bulk of traders are betting on more rate hikes into year-end. 

Finsum: Bond yields are now trading at their 52-week highs following a series of better than expected economic data. Can equities still rally with yields at these levels?