Rising Bond Yields Threaten S&P 500 with 20% Drop

Strategist Phillip Colmar warns that rising long-term bond yields could trigger a 15-20% decline in the S&P 500. Yields on the 10-year Treasury have already exceeded 4.7%, while 30-year yields have risen above 5.2%, driven by inflationary pressures from the US-Iran war, economic growth concerns, and government debt levels.

Colmar suggests that if 10-year yields approach 5%, a significant de-risking event may occur. This would particularly impact AI-driven growth stocks, which face higher borrowing costs and lowered earnings expectations. He notes that when expectations are too high and cannot be met, it creates an air pocket that can lead to sharp declines.

To counter these trends, Treasury Secretary Scott Bessent announced an increase in bond buybacks to reduce market supply and suppress yields. However, Colmar warns this move could backfire by signaling panic to the market. The risk is compounded by a lack of coordination with the Federal Reserve, which intends to let government bonds roll off its balance sheet.