The US stock market is entering a crucial period in which corporate earnings, inflation expectations and government-bond yields are competing to determine the next direction for equities. The S&P 500 remains close to record levels, supported by strong corporate profit expectations and enthusiasm for artificial intelligence. Yet the bond market has become a growing source of concern. Treasury yields have climbed to levels not seen in more than two decades, raising the cost of financing and making investors more selective about the prices they are willing to pay for stocks.

As of Friday's reporting, the 10-year US Treasury yield was approximately 5.23%, while the 30-year yield stood near 5.61%. Reuters reported that the 10-year yield had risen about 135 basis points since the war with Iran began in February, while the 30-year yield had increased by approximately 110 basis points from its March low. The moves reflect a combination of inflation risk, shifting Federal Reserve expectations, heavy debt issuance and a higher premium demanded by investors for holding long-term bonds.

One important issue is the relationship between bond yields and equity valuations. A stock's value depends partly on expected future profits and the rate used to discount those profits into today's dollars. When Treasury yields rise, investors have a more attractive alternative to equities and may demand a higher expected return before buying stocks. That can put disproportionate pressure on expensive growth companies whose valuations depend on profits expected many years into the future.

Technology shares are especially sensitive to changes in discount rates because a significant part of their valuation may reflect expected future growth. Companies investing heavily in data centers and artificial intelligence also face another source of financing risk: they may need to raise debt or use substantial cash resources to support expansion. If borrowing costs remain high, the returns required to justify new projects increase. Investors must therefore evaluate both AI's commercial potential and the cost of financing the infrastructure behind it.

The bond market faces its own technical pressures. Reuters has highlighted rising demand for protection against higher yields, debt issuance by large technology companies and hedging by mortgage investors. When companies issue large quantities of debt, bond buyers may sell Treasury securities to manage portfolio risk or make room for new investments. Mortgage investors may also sell Treasury futures to hedge the effect of changing interest rates on the expected duration of their assets. These transactions can add selling pressure even when they are not driven by a sudden deterioration in the economy.

Higher yields do not automatically mean that banks will struggle. Banks can benefit when returns on loans and certain assets rise faster than the cost of deposits and other funding. But the effect depends on balance-sheet composition, competition for deposits, credit quality and loan demand. Persistently high rates can make mortgages, business loans and consumer credit more expensive. Businesses may postpone expansion, consumers may borrow less, and some borrowers may find it harder to meet their obligations. Banks therefore need to demonstrate that they can preserve healthy margins without taking excessive credit risk.

This makes the start of the third-quarter earnings season particularly important. JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo are scheduled to report Tuesday, October 13, followed by Bank of America and Morgan Stanley on Wednesday, October 14. Investors will examine lending growth, net interest income, credit-card delinquencies, investment-banking revenue, trading activity and management commentary about the economic environment. Strong results could help demonstrate that financial institutions remain resilient. Cautious guidance or deteriorating credit metrics could reinforce concerns about the effects of restrictive monetary conditions.

The September consumer-price index report, also scheduled for October 14, is another major catalyst. A hotter-than-expected reading could strengthen the case for keeping interest rates elevated or tightening policy further. A cooler reading could ease pressure on bond yields and support valuations, although the market reaction will depend on the details and the implications for future monetary policy.

For investors, the market's recent performance highlights a difficult balance. The S&P 500 and Nasdaq have generated substantial gains during the AI-led bull market, but the concentration of index returns among a relatively small number of large companies leaves broad indexes vulnerable if technology leadership weakens. Strong earnings remain a powerful support, but valuations are less forgiving when capital becomes more expensive.

Investor takeaway: The key issue is whether corporate earnings can continue to grow fast enough to justify current stock prices while Treasury yields remain elevated. Bank results and inflation data will provide important clues. Investors should monitor both earnings quality and the bond market rather than assuming that recent index strength guarantees a continuation of the rally.