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Why Stocks Can Rally Despite 20-Year-High Bond Yields? ETFs in Focus
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Key Takeaways
Strong earnings growth is helping stocks withstand elevated Treasury yields.
S&P 500 valuations have eased as earnings growth outpaces the index.
VOO, QQQ, DIA, RSP and VTI offer broad exposure to potential gains.
Wall Street’s optimism for the stock market is building up as 2026 draws to a close, despite the ongoing concerns over high bond yields. Last week, the yield on the 10-year Treasury bond — which influences mortgage rates and other borrowing costs — rose to 5.2%, marking its highest level in nearly 20 years, per Yahoo Finance.
However, rising Treasury yields have not changed Yardeni Research Chief Investment Strategist Ed Yardeni’s constructive view on equities, as mentioned in the same Yahoo Finance source. The economist believes a solid economic backdrop and strong corporate earnings continue to provide support for stocks.
State Street SPDR S&P 500 ETF Trust (SPY - Free Report) has gained 13% so far this year (as of Sept. 25, 2026). The latest rally highlights the resilience of U.S. equities despite several recent challenges. Stocks have continued to advance during a historically weak month, despite higher bond yields, geopolitical risks in the Middle East, a 25-basis-point Fed rate hike, expectations for additional hikes, and concerns about the sustainability of the AI boom.
Inside Corporate Strength
Yardeni Research Chief Investment Strategist Ed Yardeni highlighted the strength of corporate profits during the first half of the year, calling the performance exceptionally strong. He expects earnings growth to remain a major driver of the market in the months ahead, describing the current advance as primarily an “earnings-led bull market.”
Fueled by a powerful earnings season, the S&P 500 has climbed to fresh records this month. S&P 500 companies are projected to deliver 33.5% year-over-year adjusted earnings growth for the second quarter, marking the strongest pace since 2021, according to LSEG I/B/E/S, as quoted on Reuters in late August.
S&P 500 earnings are expected to grow 23.9% year over year in Q3, the eighth consecutive period of double-digit gains.Earnings revisions have remained positive, extending the trend in place for nearly a year. 14 of the 16 Zacks sectors are on track to see earnings growth in Q3, reflecting broad-based positivity.
Compelling Stock Valuations
Another positive factor is the relative improvement in stock valuations. Yardeni noted that equities have become less expensive compared with the start of the year because earnings have expanded faster than the S&P 500. Still, he believes investors should keep a close eye on valuation multiples as the market moves forward.
The same tone is noticed in the Reuters article issued on late August. The article said the forward price-to-earnings ratio of the S&P 500 was at 20.2 that time, ???according to LSEG, down from a P/E ratio of about 22 at the end of 2025.
What Lies Ahead of S&P 500?
The S&P 500 will end 2026 at 7,900, per analysts and portfolio managers polled between August 12 and 25, as quoted on Reuters. Major Wall Street brokerages project the S&P 500 year-end 2026 target to range between 7,100 and 8,100, as mentioned in an INDmoney article published in July.
Goldman Sachs Research expects year-end 2026 target for the S&P 500 at 8,000, Jefferies also set an 8,000-year-end target for the S&P 500 in 2026, based on 35% earnings growth and $373 EPS, versus consensus growth of 29%, per investing.com, as cited by Yahoo Finance. The S&P 500 currently sits at 7,743.
Jefferies sees the index reaching 9,000 by the end of 2027, supported by $450 EPS and 20.8% earnings growth. Strong earnings and continued AI investment are key drivers of this bullish outlook.
Any Wall of Worry?
However, higher oil prices, the federal budget deficit and the growing amount of corporate borrowing associated with AI investment could challenge the bullish outlook on stocks.
Oil remains particularly important. A sustained move toward $100 per barrel could make it harder for inflation to moderate, leading the Federal Reserve to opt for more hawkish stance.
Higher-for-longer rates could, in turn, push Treasury yields higher and create headwinds for equities.
ETFs to Bet On
Broader market ETFs like Vanguard 500 Index Fund ETF Shares (VOO - Free Report) , Invesco QQQ (QQQ - Free Report) , State Street SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , Invesco S&P 500 Equal Weight ETF (RSP - Free Report) and Vanguard Morningstar Total Stock Market ETF (VTI - Free Report) can be useful bets at the current moment.
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Why Stocks Can Rally Despite 20-Year-High Bond Yields? ETFs in Focus
Key Takeaways
Wall Street’s optimism for the stock market is building up as 2026 draws to a close, despite the ongoing concerns over high bond yields. Last week, the yield on the 10-year Treasury bond — which influences mortgage rates and other borrowing costs — rose to 5.2%, marking its highest level in nearly 20 years, per Yahoo Finance.
However, rising Treasury yields have not changed Yardeni Research Chief Investment Strategist Ed Yardeni’s constructive view on equities, as mentioned in the same Yahoo Finance source. The economist believes a solid economic backdrop and strong corporate earnings continue to provide support for stocks.
State Street SPDR S&P 500 ETF Trust (SPY - Free Report) has gained 13% so far this year (as of Sept. 25, 2026). The latest rally highlights the resilience of U.S. equities despite several recent challenges. Stocks have continued to advance during a historically weak month, despite higher bond yields, geopolitical risks in the Middle East, a 25-basis-point Fed rate hike, expectations for additional hikes, and concerns about the sustainability of the AI boom.
Inside Corporate Strength
Yardeni Research Chief Investment Strategist Ed Yardeni highlighted the strength of corporate profits during the first half of the year, calling the performance exceptionally strong. He expects earnings growth to remain a major driver of the market in the months ahead, describing the current advance as primarily an “earnings-led bull market.”
Fueled by a powerful earnings season, the S&P 500 has climbed to fresh records this month. S&P 500 companies are projected to deliver 33.5% year-over-year adjusted earnings growth for the second quarter, marking the strongest pace since 2021, according to LSEG I/B/E/S, as quoted on Reuters in late August.
S&P 500 earnings are expected to grow 23.9% year over year in Q3, the eighth consecutive period of double-digit gains.Earnings revisions have remained positive, extending the trend in place for nearly a year. 14 of the 16 Zacks sectors are on track to see earnings growth in Q3, reflecting broad-based positivity.
Compelling Stock Valuations
Another positive factor is the relative improvement in stock valuations. Yardeni noted that equities have become less expensive compared with the start of the year because earnings have expanded faster than the S&P 500. Still, he believes investors should keep a close eye on valuation multiples as the market moves forward.
The same tone is noticed in the Reuters article issued on late August. The article said the forward price-to-earnings ratio of the S&P 500 was at 20.2 that time, ???according to LSEG, down from a P/E ratio of about 22 at the end of 2025.
What Lies Ahead of S&P 500?
The S&P 500 will end 2026 at 7,900, per analysts and portfolio managers polled between August 12 and 25, as quoted on Reuters. Major Wall Street brokerages project the S&P 500 year-end 2026 target to range between 7,100 and 8,100, as mentioned in an INDmoney article published in July.
Goldman Sachs Research expects year-end 2026 target for the S&P 500 at 8,000, Jefferies also set an 8,000-year-end target for the S&P 500 in 2026, based on 35% earnings growth and $373 EPS, versus consensus growth of 29%, per investing.com, as cited by Yahoo Finance. The S&P 500 currently sits at 7,743.
Jefferies sees the index reaching 9,000 by the end of 2027, supported by $450 EPS and 20.8% earnings growth. Strong earnings and continued AI investment are key drivers of this bullish outlook.
Any Wall of Worry?
However, higher oil prices, the federal budget deficit and the growing amount of corporate borrowing associated with AI investment could challenge the bullish outlook on stocks.
Oil remains particularly important. A sustained move toward $100 per barrel could make it harder for inflation to moderate, leading the Federal Reserve to opt for more hawkish stance.
Higher-for-longer rates could, in turn, push Treasury yields higher and create headwinds for equities.
ETFs to Bet On
Broader market ETFs like Vanguard 500 Index Fund ETF Shares (VOO - Free Report) , Invesco QQQ (QQQ - Free Report) , State Street SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , Invesco S&P 500 Equal Weight ETF (RSP - Free Report) and Vanguard Morningstar Total Stock Market ETF (VTI - Free Report) can be useful bets at the current moment.