Two More Interest Rate Hikes "Very Likely" for 2026, Earnings Boost Investor Confidence

• The Federal Reserve is expected to implement at least one, and potentially two, more interest rate hikes this year, driven by persistent inflation and a strengthening economy.
• Rising 10-year Treasury yields, now above 5% and on track for a seventh consecutive monthly gain, present a significant psychological and economic tipping point.
• Despite rising yields, strong corporate earnings and economic growth are currently supporting equity markets, though market breadth is a concern with more stocks making new lows.
• Cracks are appearing in the junk bond market, particularly for lower-rated (Triple-C and Single-B) and highly leveraged companies facing increased interest expenses.

The discussion highlights the Federal Reserve's hawkish stance, with expectations of at least one, and likely two, more interest rate hikes this year due to persistent inflation and a strengthening economy. While rising 10-year Treasury yields (crossing 5%) are a significant psychological point, strong corporate earnings and economic growth are currently preventing a 2022-style stock market downturn. However, concerns remain regarding market breadth and the impact on lower-rated junk bonds.