Stocks closed mostly lower yesterday with only the Nasdaq eking out a small gain of 0.01%.

With one more day to go, both the Nasdaq and the S&P 500 are poised to close up for the week. (Although, the Dow and the small-cap Russell 2000 are currently in the red for the week.)

Rising yields continue to vex stocks. The 10-year Treasury yield rose to 5.16% yesterday, the highest since 2007.

With a stronger than expected economy, rising oil prices, and inflation that's still too high, yields have been on the move as traders expect more hikes to come.

But none of this should be any surprise. According to the Fed's latest Summary of Economic Projections (SEP), it clearly suggests one more rate hike by year's end, putting the Fed Funds rate at 4.1%, which represents one more 25 basis point rate hike. But the SEP also sees rates staying at 4.1% in 2027 as well.

And the CME's FedWatch tool shows expectations climbing for that next hike to happen on 10/28, when the Fed makes their next announcement on rates. It was at roughly 55%, but has now increased to 67.5%. (Although, that's down from Wednesday's 69.2% print.)

But are yields moving too high too fast?

Over the past 40 years (1985-2025), the spread between the Fed Funds Rate (FFR) and the 10-yr has historically been 100 to 150 basis points. That includes normalization periods, expansion periods, compression periods, and inversion periods. The median is 120 bps.

Looking at the last 10 years, however, the spread was 25 bps. And over the last 5 years, it was -40 bps due to 2023's deep inversion. In fact, in 2023, at its extreme, the FFR hit a midpoint of 5.38%, while the 10-yr midpoint was at 3.90%. That's a -148 bps spread.

In 2025 there was a re-steepening, pushing the spread 25 to 75 bps.

Currently, the spread is 128 bps, which is pretty much right at the historical median. If the FFR rises to 4.1%, which is expected, that would put the spread at 106 using today's 5.16% for the 10-yr. If the spread maintained its median, that would put the 10-yr at 5.30%.

The point is, I'm not expecting the 10-year to rise forever. Nor am I expecting the FFR to shoot up much more than expected either.

The rise in yields, in my opinion, is simply a reversion to the long-run median spread of 120 bps.

And I am not expecting that to derail this historic bull rally in equities.

Alright, enough about yields.

Yesterday's Kansas City Fed Manufacturing Index improved to 14 vs. last month's 10 and views for 8.

Today we'll get the Durable Goods Orders report, and the always important Consumer Sentiment report (as a happy and confident consumer is a consumer who spends -- and since roughly 70% of GDP comes from consumer spending, it's a number to watch).

And we'll see if the market can regroup and put some green on the board, with the S&P and Nasdaq locking in a positive close for the week.

Best,