FAST FIVE: How Much Higher Can Yields Rise Before Stocks Get Slammed? Marko Kolanovic Answers
Our view and analysis suggest that yields can increase another ~150 bps before they become a potential problem, and that rising yields will only accelerate the upside in cyclical and value stocks as they reflect improving economic conditions.
As such, since markets tend to be forward looking, they were pricing in an ever more dovish Fed – and liquidity injections – and that's precisely what they got.
Now, on the other hand, should yields surge, the Fed will once again have to turn hawkish, something markets will once again sniff out and frontrun, and in turn start buying duration and defensive exposure.
There is another reason why we find it very unlikely that 10Y yields can rise to 3.50% as Kolanovic suggests.
As we saw in late 2018, 3.20% is all the stock market could take before collapsing.