No good comes without some bad. Rising oil and Treasury yields have pushed the S&P 500 lower for a second straight session. Yet the broad index still holds powerful cards. Brent continued to climb after reports of strikes on Middle East energy infrastructure, short-term Treasury yields jumped, and money markets now price in the probability of a Fed rate hike this month above 50%. In this environment, markets are forced to focus on inflation, and crucial price data arrives in just a few days.

Stock index performance

Meanwhile, Treasury Chief Scott Bessent is trying to cool the bond market "fever" with an expanded Treasury buyback program. The Treasury has not disclosed precise amounts, but RBC Capital Markets warns that a $4 billion buyback would disappoint investors and may actually fuel yield growth. The bank's base case is $5–6 billion, and Morgan Stanley even suggests a ceiling as high as $10 billion. The size of the program will set a new benchmark for future purchases and reveal how seriously Bessent is worried about current Treasury yields after August's hastily announced measures.

Earnings momentum, however, is an even stronger card than geopolitics. Citigroup notes that analysts have raised US corporate earnings estimates for 21 consecutive weeks, the longest streak since September 2021, laying the groundwork for another potentially record earnings season.

Earnings revisions

State Street Global Markets argues that micro, not macro, is driving stocks. The firm sees strong profit growth fueling investor appetite and does not view it as euphoria or a retreat from reality. UBS adds that S&P 500 earnings forecasts for next year have risen almost 4% in just two months, marking a rare and meaningful shift.

Notably, this run-up in Treasury yields is happening alongside stronger economic growth, not just on fear. That suggests equities can digest higher rates. HSBC believes US stocks are not as expensive as they appear: current valuations do not reflect the scale of an AI-driven productivity boom, and the P/E gap with Europe has narrowed. The S&P 500 trades around 19x forward earnings versus roughly 15x for the EuroStoxx 600.

So the market stands a real chance of holding between two fires — oil and rates on one side, earnings and Treasury buybacks on the other. Which flame will burn hotter will be decided by Friday's inflation prints.

Technically, the daily chart shows that the S&P 500 is approaching the lower boundary of a narrowing wedge. The test of the 7,670 support level is key: a break below it would be a sell signal, while a rebound from that level would be a reason to buy.