Tag: 10-year yield

TL;DR

• Midterm elections and the S&P 500 rally: history says the three‑month “sweet spot” around the vote has positive median returns of 7% and wins in 21 of the last 23 cycles, but 2026’s 5%+ Treasury yields could muffle the effect. [1][5]
• The unusual twist in 2026 is profit growth: analysts expect roughly 30% year‑over‑year S&P 500 EPS growth this quarter, a tailwind strong enough to overcome higher yields—if those yields stop rising. [2]
• Concentration risk is the joker: with the top 10 stocks over 40% of the index, any seasonal pop hinges on a handful of mega caps behaving; breadth, not partisanship, will decide the rally’s staying power. [4][8]

What the source said

Yahoo Finance highlights Deutsche Bank strategist Jim Reid’s chartbook on midterm seasonality. His team finds the S&P 500 has risen in 21 of the last 23 midterm cycles in the window from one month before Election Day to two months after, with a 7% median gain; 1978 and 2018 were exceptions tied to inflation and rising rates (1978) and a rate‑driven selloff plus U.S.–China trade tensions (2018). Reid argues 2026 looks more supportive because earnings season is about to be “blockbuster,” with consensus expecting ~30% year‑over‑year EPS growth, which could supply a tailwind despite recent rate volatility. [1][2]

Why it matters

Two clocks are ticking into November 3, 2026: Washington’s election clock and Wall Street’s profit clock set by quarterly earnings. Index investors using SPY, IVV, and VOO have real money at stake in whether the midterm playbook—buy weakness into late October, ride a relief rally—beats the bond market’s message. If seasonality works, passive portfolios win by doing nothing; if yields or a profit hiccup swamp the pattern, concentrated S&P 500 exposure could translate small tech stumbles into big portfolio drawdowns. [1][2][5][10]

The political “who wins Congress” question is overrated for markets. What matters most to allocators—from pension CIOs to systematic funds—is whether peak rate fears ease while earnings breadth widens. In a year when the 10‑year Treasury has flirted with 5.3% and AI‑linked mega caps dominate index weight, the midterm bounce will be decided by flows, rates, and profits, not party labels. [5][8]

Original analysis

Consensus: “Midterms usually deliver a year‑end rally; just hold your S&P 500 and let history work.” My read: that’s incomplete in a 5%‑yield world with a top‑heavy index. Seasonality is real—but conditional on rates and earnings breadth. [5]

• Historical analogue: 2018 is the cautionary case. The S&P 500 fell roughly 19.6% from October 3 to December 24, 2018 as the Fed hiked rates, QT tightened liquidity, and trade risks rose; the selloff ended only after the Fed pivoted more dovish in January 2019. [1][6]
• Historical analogue: 1978 is the inflation case. A mid‑November hike in the prime rate to 11% triggered another sharp market drop as stagflation anxieties mounted. High and rising rates trumped calendar effects. [7]

What’s different in 2026 is earnings power. Multiple outlets cite FactSet estimates near 30% YoY growth for Q3 S&P 500 EPS—an unusually fat cushion. If profits are that strong, bears need either higher discount rates or narrow breadth to keep a lid on prices. [2]

• Rates, the spoiler: the 10‑year Treasury has hovered around 5.24%–5.36% this week, its highest zone since the early 2000s. Each uptick compresses equity multiples, especially for long‑duration mega caps that dominate the S&P. A seasonal pattern that “usually” adds ~7% can be erased by a 50–75 bps yield surge. [1][5]
• Concentration risk, the amplifier: the top 10 companies represent 40%+ of the S&P 500’s cap weight. If a few AI platform leaders underdeliver, seasonality won’t save the cap‑weighted index; equal‑weight and cyclicals could still work. [8]

Back‑of‑envelope math

• Assume 2026 Q3 S&P 500 EPS grows 30% YoY (consistent with FactSet via AP). If the trailing EPS run‑rate were $240, a 30% quarterly YoY lift implies an annualized run‑rate around $240 × 1.30 ≈ $312. [2]
• Holding the forward P/E at 20x yields a fair‑value handle near 20 × $312 ≈ 6,240. At 21x, that’s ~6,550; at 22x, ~6,864. If the 10‑year stays >5%, a 1–1.5‑turn multiple compression (to 19x) still leaves ~5,928—directionally positive but likely shy of the historical ~7% median unless yields relent. [1][5]

A 2×2 framework: Seasonality vs. 2026 macro

• Yields down, earnings broadening: Best setup. Expect cap‑weighted S&P to outperform equal weight; mega caps lead; Q4 total return near or above the ~7% midterm median. [1]
• Yields down, earnings concentrated: Relief rally but fragile. Mega caps carry; breadth lags; equal weight trails; multiple expansion limited by concentration risk.
• Yields up, earnings broadening: Rotation market. Equal‑weight S&P and cyclicals outperform; cap‑weighted index grinds rather than sprints.
• Yields up, earnings narrow: 2018‑lite. Seasonality fails; downside skew returns as a handful of tech heavyweights dictate index direction. [6]

Named‑stakeholder breakdown

• Nvidia, Microsoft, Apple: outsized index impact; their prints and guidance will define whether “earnings breadth” shows up or the rally remains top‑heavy. [8]
• iShares Core S&P 500 (IVV) and Invesco S&P 500 Equal Weight (RSP): If yields rise, RSP likely cushions via factor rotation; if yields fall and AI leadership endures, IVV wins. [8]
• Treasury Borrowing Advisory Committee/Treasury market: Any change in refunding plans or buyback operations that tames term premia could reignite a seasonal bid; further supply‑driven yield spikes would snuff it out. [5]

Bottom line: history argues for a positive three‑month window into and out of November 3, 2026. This year, the balance of power sits with the bond market and a small set of profit engines. If yields stabilize and earnings broaden, the midterm playbook works. If not, expect a more rotational, narrower—and potentially underwhelming—finish to the year. [1][2][5][8]

What others are missing

The flow calendar, not just the election calendar. Corporate buyback blackouts typically accelerate around mid‑September and lift progressively through late October as companies report, reopening a major source of equity demand into the midterm “sweet spot.” Citadel Securities flags blackout timing beginning around September 12 and more than $1.1 trillion of 2026 buyback authorizations coming back into open windows, a scale that can shift net demand. Watch the blackout‑lift and desk flow data as closely as polls because this mechanical supply‑and‑demand switch can outweigh partisan headlines in October–November 2026. [9][1][3]

What to watch next

1. By November 30, 2026, the 10‑year Treasury yield will have closed below 5.00% on at least one trading day as supply events pass and CPI prints reset term‑premium fears. [5]

2. Between October 15 and December 31, 2026, the S&P 500 Equal Weight Index (RSP) will outperform the cap‑weighted S&P 500 by at least 1.5 percentage points if earnings beats extend beyond the top 10 names. [8][2]

3. From the S&P 500’s October 10, 2026 close to December 31, 2026, the index will post a total return of at least +4%, consistent with—but shy of—the historical midterm median as high yields cap multiples. [1][5]

My take

I’m betting on a midterm bump, not a melt‑up. With the 10‑year near 5.3%, the market needs either falling yields or blow‑out breadth to print a classic 7%+ “sweet spot” move. The profit setup looks unusually good in 2026, which keeps me constructive on a positive Q4 tape. I’d express the view with some equal‑weight and cyclicals alongside mega caps, because concentration makes the index vulnerable to one or two earnings misses; if rates back off even modestly in November, the rally has room. [5][2][8]

Sources

[1] History says midterms could hand the S&P 500 a year-end rally: Chart of the Day — Yahoo Finance (https://finance.yahoo.com/markets/article/history-says-midterms-could-hand-the-sp-500-a-year-end-rally-chart-of-the-day-100000388.html) — Deutsche Bank’s midterm seasonality: 21/23 win rate, 7% median in the three‑month window and the 1978/2018 exceptions.

[2] US stocks rise to a record on expectations companies will make even fatter profits — AP News (https://apnews.com/article/e8285ec7afbe81e9df277e8ee2127982) — Cites FactSet: analysts now expect nearly 30% YoY S&P 500 EPS growth for Q3 2026.

[3] Outlook 2026 — LPL Research (https://www.lpl.com/content/dam/lpl-research/documents/outlook-2026-report.pdf) — Midterm stats: average 14.5% in the 12 months after midterms and a historically high hit rate for positive returns.

[4] Midterm Elections and Stock Market Trends — BlackRock (https://www.blackrock.com/us/financial-professionals/insights/2026-midterm-elections-and-market-performance) — Sector‑level dispersion; midterm years weaker on average; pre‑election rally often begins ~22 trading days before the vote.

[5] How major US stock indexes fared (Oct 5–9, 2026 series) — AP News (https://apnews.com/article/44b75c188756038371cf3112ede9cee8) — Documents the 10‑year Treasury in the 5.24%–5.36% range near multi‑decade highs and the S&P 500 hovering near records in early October.

[6] Market Events and Investor Reactions — U.S. Congress (govinfo.gov) (https://www.govinfo.gov/content/pkg/CHRG-116shrg36538/pdf/CHRG-116shrg36538.pdf) — Details the 2018 Q4 selloff: S&P 500 fell ~19.6% from Oct 3 to Dec 24 amid Fed tightening and trade tensions.

[7] Boost in Prime Rate to 11% Triggers Big Market Drop — The Washington Post (https://www.washingtonpost.com/archive/business/1978/11/14/boost-in-prime-rate-to-11-triggers-big-market-drop/0ec75690-47f4-46ce-8df3-5cf7b76ae49d/) — 1978 case study: mid‑November prime rate hike coincided with sharp equity declines around the midterms.

[8] Building intentional US equity exposure in portfolios — J.P. Morgan Asset Management (https://am.jpmorgan.com/be/en/asset-management/adv/insights/portfolio-insights/equity/building-intentional-us-equity-exposure-in-portfolios/) — Confirms S&P 500 concentration: top 10 companies >40% of index as of September 2026.

[9] September Setup: The Asymmetry Has Changed — Citadel Securities (https://www.citadelsecurities.com/news-and-insights/global-market-intelligence/september-setup/?series=global-market-intelligence) — Notes blackout timing (beginning around Sept 12) and the scale of buyback authorizations returning to open windows later, shaping equity flow into late October/November.

[10] 2 U.S.C. § 7 and USAGov Midterm Page — U.S. Code and USAGov (https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title2-section7) (https://www.usa.gov/midterm-elections) — Establishes Election Day (first Tuesday after the first Monday in November) and confirms the 2026 midterm timing (November 3, 2026).

TL;DR

• Bessent’s Treasury is borrowing at a clip that makes net interest the fastest-growing federal bill, now bigger than year‑to‑date defense outlays—and taxpayers are already footing it [2].
• The real squeeze isn’t “debt apocalypse”; it’s financing mechanics: coupon sizes are frozen into 2026, pushing a refinancing wave into 2027 when rates may still be sticky [3][4].
• Back‑of‑envelope: if 9‑month net interest is $857B, FY2026 likely tops ~$1.14T—about $8.5K per U.S. household—before any new programs, tax cuts, or wars enter the chat [2][10].

What the source said

TheStreet’s piece argues the “troubling news for every taxpayer” is the interest bill itself and points to the CBO’s June 2026 Monthly Budget Review showing a $1.4 trillion deficit for the first nine months of the fiscal year and $857 billion in net interest, roughly $23.8 billion a week and up 13% year over year [1][2]. It notes that total federal debt is near $39.4 trillion and that year‑to‑date net interest has surpassed defense spending in the same period [1][2]. The article references CRFB’s warning that full‑year borrowing could exceed $2 trillion and cites longer‑term CBO projections showing interest costs roughly doubling by 2036, with Social Security’s OASI trust fund projected to hit insolvency in 2032 if laws remain unchanged [1][7][8].

Why it matters

Stakeholders aren’t abstract “taxpayers”; they’re workers whose FICA payroll taxes fund Medicare and Social Security, retirees whose checks depend on the OASI and DI trust funds, and households facing higher “interest taxes” in the form of rising federal carry costs each year [2][8]. The CBO ledger for FY2026 to date shows interest already outruns discretionary fights over EPA, Education, or Commerce; those culture‑war skirmishes won’t reclaim real money if the interest line keeps compounding at a double‑digit clip [2].

Markets, too, have agency. Primary dealers and bond funds absorb the supply that Bessent’s team ships each week via bills, notes, and bonds, and TBAC minutes indicate dealers expect larger coupon auctions in early 2027 [3]. That means price risk today and term‑premia tomorrow, with the bill landing in the public’s lap via higher interest outlays that crowd out choices elsewhere, including discretionary spending in FY2027–2028 [3][6].

Original analysis

• Back‑of‑envelope math

  • Nine months into FY2026, net interest totals $857B. Annualizing: $857B ÷ 9 × 12 ≈ $1.142T for the full year (directionally conservative if rates or issuance tick up) [2].
  • Households: FRED shows ~134.79 million U.S. households in 2025. $1.142T ÷ 134.79M ≈ $8,470 per household in FY2026—pure carry cost, not new services [10].

• Contrarian read

  • Consensus: “Debt is unsustainable; immediate austerity or crisis is inevitable.”
  • Counter: Over the next 12 months, the binding constraint is issuance plumbing, not instant insolvency. Treasury said it will keep note/bond auction sizes steady for “several more quarters,” even as TBAC’s discussion flags a ~$1.3 trillion funding shortfall over FY2027–2028 if current sizes persist [3][4]. Translation: the tough part got kicked into 2027, when terming out becomes unavoidable—and if 10‑year yields stay elevated, coupons will reset higher right as more supply arrives [3][4].

• A named‑stakeholder breakdown

  • Scott Bessent, Treasury Secretary: He is selling into a rising‑rate, deficit‑heavy backdrop with limited levers beyond maturity mix, buybacks timing, and messaging that calms dealers; his “financial literacy” push won’t bend the interest curve, but execution on issuance strategy will [5][6].
  • TBAC (Treasury Borrowing Advisory Committee): Its May 2026 minutes telegraphed that dealers expect larger coupon sizes early 2027; if realized, that locks in more high‑coupon debt and lifts interest costs structurally into the 2030s [3].
  • CBO: It just printed the scoreboard—$1.4T nine‑month deficit, $857B net interest, and interest > defense year‑to‑date; its 10‑year baseline has net interest jumping from roughly $1.0T in 2026 to about $2.1T by 2036 at 4.6% of GDP, surpassing prior peaks [2][8].
  • CRFB (Maya MacGuineas): The outside push to keep borrowing under roughly $2T in FY2026 sharpens the political choice—trim now or accept higher carry costs in 2027–2028 [7].

• Historical analogue

  • In the early 1990s, net interest peaked near about 3.2% of GDP and then ebbed as growth and falling yields did the heavy lifting from 1992 through 2000; CBO now projects roughly 3.3% in 2026 rising toward 4.6% by 2036 [8][9]. The 1990s playbook—grow out and refinance down—rode a secular disinflation tailwind; today’s baseline bakes in higher average rates, so the “grow and roll” cushion is thinner [8][9].

• A simple 2×2: rates path vs. issuance mix

  • High rates + bill‑heavy: Best near‑term auctions, worst pass‑through to interest costs; FY2027 refi pain rises.
  • High rates + term‑out now: Higher coupons today, but reduced refi risk if the Fed eases late.
  • Lower rates + bill‑heavy: Wins everywhere; but you must be lucky on timing.
  • Lower rates + term‑out: Overpays briefly, but stabilizes carry; the conservative CFO’s choice.

Treasury’s current stance—hold coupons steady and lean on bills—prioritizes auction smoothness over long‑run carry, which assumes demand for U.S. duration remains adequate and disinflation continues through 2026 [3][4][6]. If that assumption fails and 10‑year yields hover near recent highs into 2027, taxpayers inherit a bigger, stickier interest bill for years [3][8].

What others are missing

Coverage fixates on the deficit topline. The subtler story is the composition shift underneath: CBO category tables show corporate income tax receipts down about 24% year‑to‑date versus last year due to 2025 law changes that boosted deductions, while individual/payroll taxes carried more weight until a February 2026 court ruling triggered roughly $70 billion in customs refunds that hit net tariff revenue [2]. That cocktail tilts financing toward bills and away from locking in term even as net interest outlays climb 13% year over year through June 2026, raising rollover risk into the 2027 refunding window [2][3].

What to watch next

1. By September 30, 2026, net interest outlays reported in the Monthly Treasury Statement will exceed $1.12 trillion for FY2026 [2].
2. By the February 2027 Quarterly Refunding, Treasury will announce increases to nominal coupon auction sizes (at least the 2‑year and 5‑year tenors), reversing 2026’s “steady for several quarters” guidance [3][4].
3. By June 2027, CBO’s Monthly Budget Review will show corporate income tax receipts at least 15% below the same period two years earlier (June 2025), keeping pressure on bill issuance and net interest [2].

My take

If I ran Bessent’s Treasury, I’d front‑load some pain in 2026—nudge up coupons and lengthen maturities while market depth is intact—rather than gamble on a perfect 2027 [3][4]. The CBO scoreboard says interest is already outrunning defense, and the TBAC roadmap says the real refinance hit is coming within four quarters; trim the bill share, accept a few ugly auctions now, and buy rate insurance before the economy proves sticky [2][3][8]. Pair that with a modest, bipartisan PAYGO rule so new tax cuts or credits don’t feed the interest line. Otherwise households are staring at an $8K‑plus annual “interest tax” with nothing to show for it in FY2026–2027 [2][10].

Sources

1. Bessent’s Treasury has troubling news for every taxpayer — TheStreet (https://www.thestreet.com/taxes/bessents-treasury-has-troubling-news-for-every-taxpayer) — Frames net interest as the taxpayer’s real bill and cites up‑to‑date deficit and debt figures.
2. Monthly Budget Review: June 2026 — Congressional Budget Office (https://www.cbo.gov/system/files/2026-07/61982-MBR.pdf) — Confirms $1.4T nine‑month deficit, $857B net interest (up 13% YoY), and interest outlays surpassing defense year‑to‑date.
3. Minutes of the Meeting of the Treasury Borrowing Advisory Committee, May 5, 2026 — U.S. Treasury (https://home.treasury.gov/news/press-releases/sb0491) — Details dealer expectations for 2027 coupon size increases and a ~$1.3T funding gap under current sizes.
4. U.S. Treasury keeps auction sizes steady; dealers expect change in early 2027 — Kitco News (https://www.kitco.com/news/off-the-wire/2026-05-06/us-treasury-keeps-auction-sizes-steady-dealers-expect-change-early) — Reports on Treasury’s “several more quarters” guidance and market positioning.
5. Bessent wants Americans to avoid easy‑money traps and invest in financial literacy — Washington Post (https://www.washingtonpost.com/business/2026/05/01/bessent-treasury-secretary-profile/) — Profiles Scott Bessent’s agenda and public messaging constraints.
6. Bessent Has Limited Options to Halt Climb in Treasury Yields — Bloomberg News (https://news.bloomberglaw.com/capital-markets/bessent-has-limited-options-to-halt-climb-in-treasury-yields) — Explains rising yields and the narrow toolkit Treasury has to influence them.
7. CBO Estimates FY 2026 Deficit Overtakes 2025, Totals $1.4 Trillion — CRFB (https://www.crfb.org/press-releases/cbo-estimates-fy-2026-deficit-overtakes-2025-totals-14-trillion) — Provides outside analysis warning FY2026 borrowing may exceed $2T.
8. Director’s Statement on the Budget and Economic Outlook: 2026–2036 — CBO (https://www.cbo.gov/publication/62050) — Projects net interest rising from ≈$1.0T in 2026 to ≈$2.1T by 2036, from 3.3% to 4.6% of GDP.
9. An Update on the Federal Budget Outlook (March 2026) — Brookings/TPC (https://www.brookings.edu/wp-content/uploads/2026/03/20260311_TPC_GaleAuerbach_FiscalOutlook_FINAL1.pdf) — Notes the prior historical peak of net interest at ≈3.2% of GDP in the early 1990s.
10. Total Households (TTLHH) — FRED, St. Louis Fed (https://fred.stlouisfed.org/series/TTLHH/) — Supplies the ≈134.79 million household count used for per‑household cost estimates.