- The yield of the 10-year Treasury Note shot from 3.8 percent in September 2024 to nearly 4.9 percent in January 2025.
- The stock market fell by more than 10 percent when the yield on the 10-year Treasury rose from four percent to five percent in 2023.
- The economy and the stock market crashed when the yield on the 10-year Treasury hit 5.25 percent in 2007.
- Historically, a moderately growing economy with stable, moderate yields has been a sweet spot for equity performance. Abrupt spikes (up or down) often introduce market volatility.
The yield of the 10-year Treasury Note has been rocketing higher, threatening to break above five percent. That yield rise is unusual given that the Federal Reserve has been cutting its short-term Federal Funds rate over the same time.
The Federal Reserve spent nearly two and a half years fighting inflation by raising interest rates. One result of that was the stock market crash in 2022. At the September 2024 Fed meeting, they reversed course and cut their benchmark federal funds interest rate for the first time in four years. However, other interest rates, like the critical yield on the 10-year Treasury Note, have risen, and the stock market has not reacted well to it.
(Some) interest rates have skyrocketed
In a video I posted on LinkedIn, I talked about why the yield of the 10-year Treasury Note has shot up from about 3.8 percent in September 2024 to nearly 4.9 percent in January 2025. The impetus for the yield surge was a combination of expected economic growth and rising inflation expectations. And, of course, each of those reasons has its own reasons. For the stock market, however, seemingly all that matters is that those factors are likely to put the Federal Reserve’s interest rate-cutting campaign on pause—or at least mitigate it. As a result, this will keep other rates higher than they might otherwise be. Given that much of the rally in stock prices manifested due to an expectation of lower interest rates, it is no wonder that the market has gone sideways throughout the last few months.
Stocks do not react well when interest rates rise because a business’s valuation calculation includes an interest rate component. In particular, technology stocks and small-cap stocks get hurt. The obvious question is, “At what level of interest rates does the stock market stall or crash?”
When it comes to high interest rates, when is enough enough?
Over the last half century, the average 10-year yield has been about 5.5 to six percent. I give a range because there were some stretches when it was extremely high and some when it was extremely low, and I want to be careful not to manipulate the data. Here is a helpful way to think about it:
- High-yield era (late 1970s to 1980s): Yields frequently reached double digits (10 to 14 percent) due to high inflation and tight monetary policy.
- Moderate era (1990s to early 2000s): Yields generally ranged between four and eight percent, reflecting lower inflation, a growing economy, and more stable monetary policy.
- Low-yield era (post-2008): Following the Global Financial Crisis and the Federal Reserve’s accommodative policies, yields trended downward into the one-to-two percent range for much of the 2010s, occasionally dipping below one percent in 2020.
When you weigh these different periods (especially the very high yields of the early 1980s), you end up with an overall average of roughly 5.5 percent to 6.0 percent for the 10-year Treasury yield going back about 50 years (i.e., to the mid-1970s).
How does the stock market perform when interest rates are high?
There is no universal rule such as “stocks always do better when yields are low/high” or “stocks always do worse when yields are rising/falling.” The broader macroeconomic environment—why yields are where they are and why they are moving—is crucial. Sometimes, stocks perform well when interest rates are rising (e.g., when rising yields reflect a strengthening economy). At other times, stocks fall as rates go up (e.g., when higher yields stem from inflationary fears or tighter monetary policy). Likewise, low yields have sometimes supported higher equity valuations, but ultra-low yields can also coincide with weak economic conditions that dampen stock returns.
Historically, a moderately growing economy with stable, moderate yields has been a sweet spot for equity performance. Abrupt spikes (up or down) often introduce market volatility. The stock market does not react to good or bad; it reacts to better or worse. Rapid changes (in either direction) can unsettle markets, while stable yields often coincide with smoother bull markets.
A level of 4.9 percent on the 10-year Treasury could be good for stock prices if it got there from, say, seven percent. However, a 4.9 percent rate could be a bull market killer if it has risen from 3.8 percent, which is where it was a mere four months ago.
That is what matters in this conversation—not necessarily the level of interest rates but their direction and pace. Still, stocks have not fared well above the 4.5 percent level in this recent cycle.
According to Evercore ISI, since the 2020 10-year Treasury yield low to the end of 2024, the S&P 500 stock market index advanced a cumulative 117 percent over 1,754 days. Throughout that period:
- Stocks fell 2.1 percent over the 89 days when the 10-year Treasury yields were above 4.5 percent, and
- Stocks fell 3.7 percent over the 20 days when the 10-year Treasury yield was above 4.75 percent.
It is little wonder that the 10-year Treasury yield, possibly breaking the five percent level, has been getting a lot of attention. Notably, the yield has rarely been above five percent over the last two decades, averaging 2.91 percent, according to DataTrek.

The 10-year Treasury yield popped over five percent through May and July 2005 and then again in June and July 2007. In both instances, the yield peaked at about 5.25 percent. The stock market was able to absorb the 2005 highs but then suffered through the Financial Crisis after 2007.
The 10-year yield nearly hit five percent (4.98 percent on a closing basis, but five percent on an intraday basis) in October 2023. DataTrek calculated the S&P 500 fell by 10.3 percent from July 31, 2023, through October 27, 2023, as the yield moved from about four percent to about five percent.
The last time yields on the 10-year note rose above five percent, in mid-2007, the result was disastrous for the economy and the stock market. However, 2025 is not 2007. The economy should be able to absorb that rate, but I doubt stock prices will accelerate; investors and market narratives anchor on easily observable data points, so I would expect the stock market to—at best—digest its two years of advancing prices if the yield got to that level.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.