iCapital Raises 10-Year Treasury Yield Forecast to 4.5%-5.3%

iCapital has raised its 10-year Treasury yield forecast to a range of 4.5% to 5.3%. Dan Suzuki, iCapital's global investment strategist, stated that oil prices will determine where yields land within this band, making the Federal Reserve's dot plot less significant. The Fed recently raised its benchmark rate to 3.75%-4% on September 16, marking its first increase since 2023, influenced by rising oil prices above 100 dollars per barrel. Suzuki noted that the 10-year Treasury yield could test either end of the new range, depending on the impact of the US-Iran war on crude supply. He observed that equity markets are under strain, with the Nasdaq and small-cap stocks sitting six percent below recent highs, and high-yield spreads widening. The reason behind yield movements is crucial; if lower yields indicate reduced war risk and stable growth, stocks may rally. Conversely, if they signal fears of an economic slowdown, stocks could decline. To mitigate risks, Suzuki recommends a barbell strategy of financials and healthcare stocks, along with private infrastructure as an inflation hedge. He also highlighted cash as an overlooked hedge, noting that household cash allocations are near record lows despite cash starting to yield returns again. The stability of the market may hinge more on oil prices than on the Fed's dot plot.

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