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The market’s relationship with Treasury yields has shifted dramatically from last year’s optimistic outlook to current anxiety as the 10-year yield approaches 4.7%. This change is fueled by multiple factors: recent data showing inflation pressures in the services sector, diminishing expectations for Fed rate cuts, and concerns about incoming President Trump’s potentially inflationary fiscal policies. Fidelity’s Jurrien Timmer warns that inflation might not be fully contained, potentially rising to 3.5-4%, a scenario that could prevent Fed rate cuts and isn’t currently priced into markets. While some experts, like State Street’s Michael Arone, argue that corporate earnings should be the focus rather than Fed policy, the S&P 500’s recent 2.8% pullback since its December peak, coinciding with a 50-basis-point rise in yields, suggests markets remain highly sensitive to interest rate movements.
