as investor sentiment shifts by the day the us stock market’s rally in recent weeks may be at risk again as rising real yields threaten to undercut the market’s performance relative to the rest of the world   that’s the view of james reilly an assistant economist at capital economics in a note released thursday he said capital economics expects “equities in general to fall over the rest of 2022” and suspects that “stocks in the us may slightly underperform those in the rest of the world as us real yields rise”  real or inflationadjusted yields matter because they’re seen as the true cost of capital for corporations after factoring in inflation when they go up real yields are bad for investors in stocks and other risky assets as they make it more expensive for say technology companies to undertake development as one example and reilly says real yields are likely to keep rising in line with the expected trajectory of the fed’s main policy interest rate which currently sits between 225 and 25  the chart below reflects how capital economics’ forecast for the fed funds rate is consistent with real yields resuming their own rise shortly see also have stocks bottomed not until this ‘gorilla’ in equity markets budges warns bofa  “we doubt the fomc the ratesetting federal open market committee will be content to watch real yields fall into negative territory” reilly wrote citing recent remarks by fed chairman jerome powell “instead we suspect that real yields will rise over the rest of this year contributing to a fall in us equities and probably driving some underperformance relative to stocks elsewhere”  since midjune us equities have generally been rising on the view that an impending domestic recession would likely curtail the fed’s aggressive ratehike campaign and help bring inflation down   now that fears of an imminent economic downturn have somewhat faded stocks have gotten support from signs that inflation pressures are already easing as seen in wednesday’s consumer price index report and thursday’s producer price data in particular the decline in july’s annual headline cpi rate renewed some investors’ faith that the federal reserve will pivot toward a lesshawkish policy stance and back away from aggressive rate hikes real yields had been falling at the end of last month and in early august with the 5year yield on treasury inflationprotected securities closing below zero according to tradeweb data that yield has since moved up to 0319 as of thursday afternoon along with 10 and 30year tips yields which also continue to trend higher    in the final hour of trading on thursday us stocks were off their best levels of the day with dow industrials djia up by less than 01 and the sp 500 and nasdaq both down