US Stocks' Unstoppable Rally Faces Two Rising Threats
US stocks have been on a tear in 2026, shrugging off inflation worries and geopolitical risks. The S&P 500 index broke above 7,800 intraday before finishing at a record 7,798.99, extending its year-to-date gain of roughly 14%. Bank of America strategist Michael Hartnett sees two potential threats to the market's advance: an exploding US national debt burden and persistently high Treasury yields.
The national debt is nearing $40 trillion, with Hartnett warning it could reach $50 trillion by 2029. The federal government recorded a $432.3 billion deficit in July, its largest monthly shortfall since March 2021. Medicare spending was among the major contributors, while rising interest costs added to the pressure.
The Congressional Budget Office estimates the federal deficit reached roughly $1.4 trillion during the first nine months of fiscal 2026. The concern is not just about the debt number itself but what it could eventually do to inflation, interest rates, and investor confidence.
Long-term Treasury yields have remained stubbornly high even as recent inflation data reduced expectations for another immediate Federal Reserve rate increase. The Treasury sold $25 billion of 30-year bonds at a 5.216% yield, the highest rate at a 30-year auction since 2001.