For the past couple of years, we have remained bullish on the stock market. Strong corporate earnings, a resilient economy, and the enormous investment being made in AI and data centres have given us plenty of reasons to stay that way.

But there has always been one number we have been watching closely: the 10-year U.S. Treasury yield.

Source: Board of Governors of the Federal Reserve System (US) via FRED®. Data retrieved Sep 24, 2026.

Earlier this year, we talked about 4.5% being an important level. We have now crossed 5%, the highest we have seen in years. At the same time, the Federal Reserve has started raising interest rates again as inflation remains stubbornly high. Oil prices haven’t helped.

Why does 5% matter? Because at some point, bonds become real competition for stocks. If investors can earn roughly 5% lending money to the US government, stocks have to offer a pretty compelling return to justify taking the additional risk. Higher rates also mean more expensive mortgages, higher borrowing costs for businesses, and lower valuations for many financial assets.

That doesn’t mean we suddenly become bearish. Corporate earnings remain strong, AI investment continues at an extraordinary pace, and the U.S. economy continues to grow. In fact, the market has handled the move in rates remarkably well so far. But the hurdle has moved higher, and that makes earnings growth even more important from here.

For the last couple of years, stocks haven’t had much competition. At 5%, bonds have finally shown up to play.

I have also included a piece from our CIBC Economics Team entitled “Inflation & the Long Game”.

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan