Since April, U.S. equities have delivered a resilient rally that broadened considerably from July onward. Still, Raymond James analysts warn that the market’s durability hinges on three essential pillars.
“This resilient U.S. equity market since April, which has broadened out meaningfully since July, has been built on three key conditions, in our opinion. Strong earnings … low oil … and importantly, the 10-year Treasury yield staying well-behaved (<4.5%),” the firm explained.
They emphasized that second-quarter results were “remarkably strong, and remarkably broad in strength,” while oil prices have dropped about 10% since the start of the year.
But the biggest factor has been bond yields. The U.S. 10-year Treasury yield has remained below 4.5% despite “clear signs of at least modest inflation impacts from tariffs, increasing Treasury General Account (TGA), decreasing reverse repo, and accelerating loan growth.”
Raymond James contrasted this with conditions abroad, noting that 10-year yields have moved higher across other economies even as global growth slowed and inflation cooled. In the U.S., by contrast, yields have “trended down, even as economic growth has been resilient, and inflation has not dis-inflated as it has in the rest of the world.”
The analysts also pointed to Treasury Secretary Scott Bessent’s emphasis on yields as a supportive factor. “So far, his focus has worked, with almost assuredly a very positive impact on equities this year,” they wrote.
Looking forward, Raymond James argued that the rally’s continuation will likely depend on maintaining the same three pillars: “the U.S. equity market likely needs yields to stay <4.5% as inflation picks up modestly, corporate earnings to keep moving in the right direction, and oil/energy to remain subdued. So far, so good.”
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