U.S. Stock Market Struggles Between Corporate Earnings and Treasury Yields

The U.S. stock market is searching for direction between improving corporate earnings and rising Treasury yields. Corporate profits are rapidly increasing thanks to expanded AI investments, but rising borrowing costs are putting pressure on stock prices. On Wall Street, ahead of major tech companies' earnings announcements, the key variable for the stock market has emerged as how much the growth in corporate profits offsets the rising costs of capital. While the construction of AI data centers and improved performance of energy companies are supporting the U.S. stock market, the rise in international oil prices and the highest levels of long-term U.S. Treasury yields are increasing the burden on businesses and households. The rise in interest rates is deepening the polarization of the U.S. stock market, and AI-related stocks are relatively avoiding the shock of rising rates due to high profit growth expectations. However, recent adjustments in AI-related stocks are changing the market atmosphere. The expected price-to-earnings ratio (PER) for the S&P 500 index over the next 12 months is 19 times, indicating that despite rising stock prices, expected earnings are growing even faster. The growth rate of corporate earnings is as strong as at the beginning of an economic recovery, but factors that drive up Treasury yields are also expected to persist. The direction of the U.S. stock market depends on whether the expansion of AI investments leads to actual profit increases and how much the rise in long-term Treasury yields burdens corporate value.

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