High Treasury Yields Unlikely to Derail Equity Rally, Wells Fargo Says

01:02 PM EDT, 05/29/2026 (MT Newswires) -- A sharp jump in Treasury yields following the Middle East conflict is unlikely to dampen investor appetite for equities, given corporate earnings growth and excitement surrounding artificial intelligence, Wells Fargo Investment Institute said in a note.

US Treasury yields have risen dramatically since late February amid rising inflation, which could prompt the Federal Reserve to keep interest rates steady for longer than expected or even raise them. The 10-year yield advanced to as high as 4.69% on May 19 from about 3.9% on Feb. 27, a day before the Iran war began.

As yields rise, borrowing costs often move higher, which could weigh on the equities market.

But yields are not high enough yet to "derail the stock market," Wells Fargo Investment Institute said in a note e-mailed to MT Newswires on Friday. Wall Street's major indexes hit new record highs this week.

"For now, several forces are helping offset that pressure (from higher rates)," Tony Miano, investment strategy analyst at Wells Fargo Investment Institute, wrote. "Corporate earnings have generally been better than expected, the job market has stayed resilient, and enthusiasm around (AI) continues to support many technology stocks."

S&P 500 companies' most recent results have shown earnings growth of about 28% from a year earlier, more than double the FactSet estimate ahead of the reporting season, Oppenheimer Asset Management said Tuesday.

Besides earnings momentum and an AI boom, there's been some optimism around prospects of a US-Iran deal to end their conflict.

"Technology and AI-related companies now make up a large share of the S&P 500 Index, so their strength can have an outsized effect on the overall index," Miano said. "We believe many of these companies also have strong revenue growth expectations for this year, which may help cushion some of the drag from higher borrowing costs."

Wells Fargo believes a significant stock market pullback could be triggered by either slowing AI momentum or a "more meaningful" increase in rates, such as the 10-year yield nearing 5%.

"The pace of rate moves also matters," Miano said. "Recently, yields have been especially volatile, and sharp swings can make investors uneasy. They can also make it harder for companies to plan financing and borrowing needs, which may add pressure to stock prices."

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