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SOCGEN TO MARKETS: DON'T PANIC YET — BUT WATCH THE 5% LINE

The question dominating investor meetings right now is simple: when do rising bond yields finally break equities?

Societe Generale's answer is reassuring— at least for now. Manish Kabra, head of U.S. equity strategy at the French bank, argues that yields would need to rise both faster and further to deliver the kind of shock that typically ends an equity cycle.

U.S. bond yields have already been elevated for four years, but the pace of increase is slowing. That means the current shock is smaller than in past episodes — such as 2000 — when rising yields helped to turn the market cycle.

Just as important, this move in yields is being supported by solid U.S. data, including ISM New Orders. Higher yields are less damaging for equities when they reflect growth rather than a pure tightening shock.

Still, Kabra says there is one level investors should watch: 5% on the US 10-year Treasury yield. That is where the equity risk premium moves into what the bank calls the "danger zone." The yield US10YT=RR was at about 4.50% on Wednesday.

As for a major top in the S&P 500 .SPX, SocGen does not yet see the usual warning signs. The bank cites no expected Fed hikes this year, rate cuts penciled in for 2027, low private-sector leverage, and ISM indicators still consistent with a mid-cycle economy.

(Karen Brettell)

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