The 10-year Treasury yield has a path to 4.5%, which could signal the bottom of the stock market.

After reaching a significant milestone in the previous session, longer rates (TBT) (TLT) are continuing their upward march on Friday. However, the "pain trade" that would affect stocks may ultimately hasten the present bear market's finish.

Early trading has the 10-year Treasury yield (US10Y) up 6 basis points to 4.29%. It reached its highest closing point on Thursday since 2008, just before the Financial Crisis sent rates plummeting. Following a decline in unemployment claims and more hawkish Fed talk (Philly Fed President Patrick Harker predicts rates to be much above 4% by year's end), the 10-year real yield (TIP) reached its highest level since 2009.

Since 1984, the Treasury price fall has lasted the longest.

Following that, fed funds futures made history by pricing a 2023 terminal rate above 5% for the first time this cycle.

The stronger-than-expected inflation prints over the past few months have caused a significant reappraisal in how hawkish the Fed and other central banks are expected to be, according to Deutsche Bank strategist Jim Reid. "Keep in mind that on the day of Chair Powell's hawkish Jackson Hole speech in late-August they closed at 3.78% for the March meeting," he wrote.

March to 4.50%: According to ING economists, markets are experiencing a "pain trade" of higher rates and tighter market conditions, so there is little room for more Treasury selling that would drive yields any higher.

There is a path for the US 10-year to reach 4.5% (with 50 bp through at the extreme in the past, when the funds rate peaks), according to ING, with the effective fund rate presently discounted at 5%. There are no guarantees there, so it doesn't need to grow much higher if the terminal rate discount doesn't keep increasing.

According to ING, the reserve status of the U.S. dollar (USDOLLAR) is the sole factor preventing a considerably stronger increase in yields (UUP). This morning, the dollar index (DXY) is rising once more and is getting close to its 52-week high.

"For the US, the strong dollar still represents net capital flows and is everyone else's issue. It also controls the increase in US Treasury yields. Treasury yields would be much higher than they are right now if not for the cushion provided by the flight into Treasuries and US assets (in a relative sense)."

Stocks washout? Higher rates put significant pressure on growth stock valuations, but so far, equity prices have held up, with what strategists are referring to as a bear-market bounce starting after the high CPI.

The 200-week moving average and 50% retracement levels of the S&P 500 (SP500) (NYSEARCA:SPY) have been successfully tested at levels near 3,600-3,500.

However, the market does often pay attention to round numbers, and because of their enormous significance, megacap stocks are vulnerable to rising interest rates. Just one year ago, the 10-year yield increased by 30 basis points to 1.5% in a single month, sending Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL), and then-Facebook (META) into correction territory. The 10-year yield (US10Y) has increased by roughly 70 bps over the previous month.

With real yields this high and megacaps trading at these prices, they are also in relatively unknown territory.

Next week, all those businesses release their earnings. Sharp selling can result from any weakness, especially in guidance, when yields are rising. The S&P 500 might drop below the 3,300 levels, where analysts have identified as a probable bottom for stocks, if technical levels are broken.

Megacaps are having trouble in premarket today as a result of Snap's significant sales letdown. Which Big Tech stock, in your opinion, will be a hot commodity in 2023? Vote in our poll.)