Yes, the S&P managed to post a new record close (the first since August 13 and the 67th new record of Donald Trump’s second term) this week despite the highest 10-year Treasury yields in nearly a quarter century.

And yes, that juxtaposition looks and feels precarious, particularly considering the composition and rapidity of recent rate-rise.

But no, that doesn’t necessarily mean stocks are completely oblivious to what’s going on in bond land, where claims on G7 governments are burning. Read on.

Notwithstanding that you can pen a good news story around higher reals (contained breakevens testify to the market’s faith in the Fed as a credible inflation fighter and higher real yields speak to a higher neutral rate and robust growth), it’s generally the case that equities don’t do well when real yields rise by two standard deviations or more over compressed time frames.

The figure on the right, above from Goldman, will be familiar to some readers. Two-sigma increases in reals tend to presage, or be accompanied by, ~4% pullbacks for the S&P. Note that the same’s true of two-sigma declines for nominal rates. Any idea why that might be? (Hint: When the US long-end’s aggressively bid, it’s usually because something’s gone wrong somewhere, triggering a flight to safety.)

So, all attempts to spin recent rate-rise as the market pricing in a rosy outlook for US growth and the implications of that outlook for monetary policy (i.e., higher policy rates) aside, history strongly suggests that the run-up in 10-year yields, and specifically real yields, since late-August (50-60bps) should’ve derailed equities more than it actually did.

But the ostensible incongruity between rapid rate-rise and “resilient” equities at the index level belies meaningful damage under the proverbial hood, Nomura’s Charlie McElligott said, in his latest dispatch.

“There are a lot of folks screaming [about] how ‘equities aren’t pricing in rates’ and are ‘whistling past the graveyard’ or being ‘complacent,’ etc., but when you look at the way rates sensitive-sectors have been crushed over the past month and a half, equities have already been undergoing a rolling correction of substantial proportions,” Charlie said, noting that Tech and Energy are the only sectors that managed to post a gain on a trailing 30-day lookback.

There’s the chart. It shows you sector returns since August 31. Tech, Comms Services and Energy are the only three to survive the bond selloff.

You needn’t be steeped in the macro-market narrative to explain that: Tech and Comms Services are the AI proxies and Energy is… well, it’s energy. Oil and stuff that’s made from it.

AI and energy are plays on the scarcity theme that informs McElligott’s “semis-energy barbell” thesis, which it’s probably fair to call the cornerstone of his strategy for navigating markets in 2026.

“[T]he world is short energy, short compute and short the infrastructure to power it, making Long Semis + Long Energy (Long Commodities) the ultimate trade YTD,” he said. That trade, Charlie reiterated, gives you “thematic alpha plus a built-in rates hedge.”

The figures above show you how well that trade’s actually worked: +65% YTD on a 3.2 Sharpe, versus 8% on a 1.2 Sharpe for a traditional 60/40 portfolio.

Do note: This isn’t one of those Hindsight Capital, “If you’d bought 10 shares of Amazon in the year XYZ, you’d be worth XYZ now” exercises. McElligott pushed this more or less all year long. That’s not to say he “predicted” the Iran war, nor that he flagged the exact moment when Semis would go vertical, but as noted above, the semis-energy barbell has been a fixture of his 2026 dispatches going back to the earlier days of the conflict. Simply put: He “captured” most of that 65%.

Coming back to the notion that stocks haven’t actually “ignored” rate rise, Charlie peered through what he called the “rotationary destruction lens” to note that 85% of the names in the S&P 500 are  more than 10% below their all-time highs, 59% more than 20% below their all-time highs, 41% more than 30%, 26% more than 40% and 17% more than 50%.

So, even as the S&P loiters near records, and even if you want to explain the index de-rating (i.e., the four-turn YoY forward multiple compression that finds the S&P trading at “just” 19x next year’s expected earnings, as illustrated by Exhibit 4 from Goldman above) solely by way of rosy profit forecasts (not higher reals), the damage beneath the surface from nosebleed Treasury yields is real.

Even at the index level, there are signs of wear and tear. As BofA’s Michael Hartnett noted in this week’s edition of his popular “Flow Show” series, a net 50% of global equity market indexes are oversold, where that means trading below their 50- and 200-day moving averages.

Although that’s the most since “Liberation Day,” Hartnett cautioned that it’s not a contrarian “buy” signal. For that, you’d need a net 88% of markets to be oversold, which he said “won’t happen imminently unless overbought tech-heavy US, Taiwan and Korean equity indices reverse quickly.”