AI rally defies 5% Treasury yields, but stocks may be closer to the limit than they look

The US equity market, led by tech benchmarks such as the Nasdaq, has demonstrated notable resilience by pushing to record highs despite 10-year US Treasury yields hovering near the critical 5% threshold. This equity rally has been largely supported by a fresh wave of AI-driven enthusiasm across big tech and semiconductor shares, catalyzed in part by positive reception to Meta's AI assistant, Muse, which shifted market attention from capital expenditures to prospective revenue adoption. Simultaneously, a pullback in energy markets, with Brent crude slipping back below $100 per barrel, has alleviated immediate inflation anxieties and reduced pressure on central bank policy expectations. However, analysts caution that the market's apparent immunity to high yields may be fragile. A sustained and decisive breakout above 5% in 10-year Treasury yields could rapidly raise the discount rate on richly valued growth stocks and make fixed-income alternatives significantly more compelling, potentially threatening the durability of the current tech rally.