Will the US 10-year Treasury yield breaking 4% affect the continuation of the US stock market's upward momentum?

Options Traders Are Optimistic About Bond Prices Rising

Market traders are closely watching an important signal: the 10-year U.S. Treasury yield is expected to fall below 4% in the near future. According to the latest position data, 10-year call options continued to increase in March, with traders generally optimistic about the potential rise in bond prices. Notably, large institutional buyers have already established positions, expecting yields to decline from around 4.2% to 3.95%, which has attracted widespread market attention. Meanwhile, the performance of the 20-year Treasury yield is also worth monitoring, as it may have greater downside potential.

Inflation Pressures Easing, Economic Slowdown as Main Theme

Recent economic research indicates that the market’s previous inflation expectations related to tariffs have been revised. Data from relevant agencies show that import-related companies are actively seeking ways to avoid tariffs, leading to a significant decrease in imported price pressures. The U.S. November unadjusted Consumer Price Index (CPI) increased by 2.7% year-over-year, well below the market forecast of 3.1%, fully confirming that inflation is indeed cooling down.

At the same time, tariff revenues have begun to shrink. Tariff income peaked at $34.2 billion in October 2025 but has since declined, falling to $32.9 billion in November and further dropping to $30.2 billion in December. This change in data reflects that importers’ hedging behaviors are producing tangible effects.

The international oil market also signals positive developments. Major adjustments in the global oil supply landscape may occur, further easing upward pressure on oil prices. Under the dual influence of oil price pressures and weakening import tariff impacts, the market generally expects U.S. inflation to moderate gradually. This environment provides the Federal Reserve with a foundation for further easing of monetary policy. Additionally, ongoing geopolitical turbulence continues to attract safe-haven capital, benefiting long-term government bonds.

Labor Data Will Be a Key Verification Point

In the coming week, the release of U.S. labor market data will be a focal point for the market. On Wednesday, the Job Openings and Labor Turnover Survey (JOLTS) and ADP employment report will be published, while Friday’s non-farm payrolls (NFP) data will be the most closely watched indicator. It is worth noting that although non-farm employment increased by 64,000 in November, the unemployment rate rose to 4.6%, reaching a new high since 2021, reflecting internal contradictions in the labor market.

In the short term, under the impact of tariff policies and artificial intelligence industry developments, the employment market may fall into a stalemate of “neither large-scale hiring nor mass layoffs.” Even if the unemployment rate remains high, as long as the overall non-farm payroll data meets expectations, investor confidence in economic prospects may remain intact.

Federal Reserve Policies and Tech Earnings Support Asset Performance

On the policy front, Federal Reserve officials have explicitly stated that further reductions in policy interest rates are needed in the future. Relevant officials have indicated that by 2026, interest rates may need to be lowered by more than 100 basis points to counteract the current monetary policy’s dampening effect on economic growth. With the announcement of the new Fed chair candidate expected soon, market expectations for a dovish policy cycle continue to strengthen.

Meanwhile, optimistic prospects for the technology sector are alleviating concerns about related bubbles. Leaders of major semiconductor companies have reported that transaction volumes with large clients exceeded expectations, and the adoption of new artificial intelligence models is accelerating, leading to more positive earnings outlooks this year, with revenue scales potentially reaching significant levels. Upstream semiconductor companies also state that global computing power supply is far from meeting demand, and they need to increase capacity by 100 times over the next five years.

Outlook: Multiple Positive Factors Support Asset Appreciation

Based on a comprehensive analysis of various factors, if U.S. labor market data does not fall significantly below expectations, the market is likely to interpret this as a “moderate slowdown,” which could actually facilitate continued inflation decline. In this context, the yields on the 10-year and 20-year U.S. Treasuries are expected to continue declining. Coupled with the Fed’s easing policy expectations and the earnings outlook for tech companies, the upward trend of U.S. stocks, precious metals, and commodities is likely to persist.