The S&P 500 remains within striking distance of record highs even as a key measure of U.S. borrowing costs has climbed to levels last seen before the 2008 global financial crisis. The index closed Monday at 7,745.06, down 0.52% for the session and about 0.7% below its August 13 record close of 7,798.99. At the same time, the 30-year Treasury yield rose to 5.3103%, its highest since 2007, before reaching about 5.3146% in early Tuesday trading. The 10-year Treasury yield was near 4.73%.
The S&P 500’s advance has been driven by strong corporate earnings, resilient consumer spending and optimism around artificial intelligence. As of the latest earnings season, about 78% of S&P 500 companies beat analyst expectations, according to FactSet. The index has climbed more than 10% year-to-date and is underpinned by a handful of mega-cap technology companies with robust AI-related profit growth.
Investors are also pricing in a more dovish Federal Reserve. According to CME FedWatch, the market sees a 60% chance of a rate cut by September. Lower rates typically reduce the discount rate on future earnings, making equities more attractive. However, longer-dated yields are sending a different signal: the 30-year Treasury yield’s move above 5.3% matters because government bonds compete directly with stocks for investor capital and influence borrowing costs across the economy.
Wall Street has so far absorbed increasingly expensive long-term money because earnings remain solid. SimCorp’s Melissa Brown told MarketWatch that “the major reason” stocks are holding up is that “earnings seem to be fine regardless of higher rates,” but warned that this eventually changes as companies need to refinance. LPL Financial’s Jeff Buchbinder noted that equities can cope with rising yields when they reflect stronger economic growth, but the current mix is less comfortable because inflation, debt supply and fiscal concerns are also pushing long-term yields higher.
Adding to bond market pressure is an unusual AI-related borrowing boom. Alphabet, Amazon and Meta have issued almost $220 billion of bonds so far in 2026, more than double their combined issuance for all of 2025, according to LSEG data. The spending highlights a feedback loop: AI investment supports stronger growth expectations and equity valuations, but building data centres, buying chips and securing power requires enormous amounts of capital. Vivek Paul, UK chief investment strategist at BlackRock Investment Institute, told Reuters: “There’s a competition for capital which is relatively unprecedented in recent times.”
Energy prices are adding to inflation concerns, with Brent crude moving above $91 on Tuesday as fading hopes for a U.S.-Iran settlement revived inflation concerns. Meanwhile, valuations remain stretched: the S&P 500 trades at about 21 times forward earnings, above its five-year average of 19, and the top 10 stocks account for over 35% of total market capitalization—a concentration level not seen since the dot-com era.
For crypto markets, the macro backdrop is becoming more challenging. Higher long-term Treasury yields raise the opportunity cost of holding risk assets, tighten global liquidity and can pressure speculative investments. Satori Insights founder Matt King expects real yields to keep rising until higher borrowing costs begin restraining credit creation and risk-taking, which could also limit the AI trade if financing becomes expensive enough to slow investment even when underlying demand remains strong. The current combination of record-level equities, elevated bond yields and heavy AI-driven capital demand leaves little room for disappointment across risk assets.
