The S&P 500 is eyeing a new record. Why the bond market still holds power.

The index appears rich: Investors are Paying a Nearly Three-Year-HIGH MULTIPLE for anticipated future profit, Making stocks particularly vulnerable to negative surprises. Us Economic Growth has been sufficient, but tariffs, along with geopolitical conflicts in the middle East and Elsewhere, Raise the Speces of Higher Pries and Slower Grower Grower Grower. Analysts are worried that such a Scenario could negatively Hit Company Profits as Consures Spend Less.

The bond market, meaning, have gotten lost in the list of market works. Investors Should Pay Attention – Thee May Still Pack a punch.

True, bonds haven’t done much in June. The yield on the 10-yar treasury note has oscillated in a 25-Basis-points range over the last 20 trading days, the smallest range over a one-month periad since insurance fall 2024, Wrote BMO CAPITAL MARKETS Strategists Vail Hartman and IAN Lyngen in a note.

If the yield on the 10-yar pushes much higher, stock prises are expected to take a hit: when yields are elevated, investors often move money to bonds, which are less-RISKY and OFFER BETER BETTER RETURNS. But it does not need to all the way that way.

The stock market’s reaction to bond yields will be driven by the underlying reasons for the risk, not just the absolute yield numbers. Higher yields due to better-that-exposed Economic Growth Are Good News for Companies ‘Profits’ Profits, and in Turn, their stocks.

However, Higher Yields Due to More Term Premium-WHICH Measures The Extra Yield Investors Demand to Stash Away Money for A Decade, Rather than just reepeated in short-tree-tree-seconds-ambass-sanctional eCONOMIC Uncertainty and can hurt stocks. Term Premium is now adding 70 Basis points onto the yield for the 10-yar.

Term Premium is Driven by Myrid Factors, Including Market Supply and Demand for Bonds, Central Bank Policies, and Uncertainty About Government Regulation. The Relative Impact of Each of these facts is hard to measure and can shift over time.

Term Premiums are not observable and cannot be traded. People have models for rough beaars, but there’s inreat uncertainty Around the Estimates, Wrote Benson Durham, Piper Sandler’s Head of Global Policy and Asset Allocation, In A Allocation.

Wars, for example, increase the supply of us treasuries – But investors If the demand from investors looks weak, the term premium will move higher at some point to reflex this Mismatch in Supply and Demand.

“There’s certainly a threshold that we think of with Regard to how big that that negative supply shocks have to be to be to for these things to get priced immediatily, which I day Equites, and would cause a genuine risk in term Premium, “Freya Beamish, Chief Economist at TS Lombard, Told Barron’s

Uncertain Economic Policies that Change Too Quickly Can also Raise Term Premium –Specially IF More Slow-Moving Investors Like Pension Funds and Insurers, Who Plug in Money in Money on Longer-Dated Bonds, Retreat.

“My point is this – IF you want an answer as to how [5% yield on the 10-year Treasuries] Might affect the s & p 500, much more background is required, even if a story, Durham Wrote. “And no one can ever be too sure.”

Write to karishma vanjani at karishma.vanjani@dowjones.com,