The primary driver for the stock market remains the U.S.-Iran war developments, stoking inflation worries from higher energy costs (oil is up again today, up 2%) and broader uncertainty. Markets have whipsawed but partially recovered on hopes of de-escalation or limited long-term impact (historical conflicts often lead to temporary dips rather than sustained bear markets). Similarly US 10Y yield continues to climb, driven by expectations of higher inflation. This increase contrasts with the typical safe-haven behaviour during geopolitical crises, where investors flock to Treasuries, driving bond prices up and yields down. Instead, the dominant force has been inflation fears triggered by surging oil prices.
Bond yields matter, higher yields pressure stocks by increasing borrowing costs for companies and consumers (e.g., mortgages, corporate debt), making fixed-income alternatives more attractive vs. equities and raising discount rates for future earnings (hurting growth/tech stocks especially). Higher interest costs crowd out other spending priorities (e.g., defense, infrastructure, or social programs) and add to fiscal strain, especially with ongoing deficits projected at 6-7% of GDP or more. Analysts note that sustained yields around current or higher levels could add trillions more to cumulative interest over a decade compared to lower-rate scenarios.