How much higher can rates go before stocks feel the pain?

Investing.com -- HSBC said in a note Thursday that higher bond yields are a risk for equities but not yet a genuine obstacle, arguing it would take a sustained move above 5% on the 10-year Treasury or a jump in volatility to become a real headwind.

"Higher interest rates are a risk, but consumers and corporates can take the punch, for now," wrote Nicole Inui, head of equity strategy for the Americas.

Neither condition is currently in place, the bank noted, adding that its house view remains for the Federal Reserve to hold rates through this year and next.

On consumers, HSBC said higher rates are reinforcing its view of a K-shaped picture. Higher-income households continue to benefit from the wealth effect supported by elevated equity prices, while lower-income households are more exposed to floating-rate debt such as credit cards and auto loans.

Mortgages, the largest share of consumer debt, are largely fixed, limiting pass-through, though a weak housing market weighs on DIY retailers.

Corporate balance sheets also look resilient. HSBC highlighted that net debt to EBITDA for the S&P 500 sits at 1.6 times and has been relatively stable, even with AI capital spending, while just 11.2% of debt is short-term and credit spreads remain historically low.

The bank believes the usual drag from yields on multiples has broken down amid strong earnings, particularly in tech. If rates stay sticky, it favors financials, energy and industrials.

You May Also Be Interested In

• IAEA says status of Iran nuclear programs unknown
• Fed hike bets, oil rally and Japan yields - what’s moving markets
• BofA cuts PG&E to Neutral as California wildfire reforms fall short