Market Insider

As Santa rally raises stocks, traders watch bond grinch

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Stocks could be swept higher in a Santa rally, but traders are watching out for a potential party pooper.

"Beware of the bond market," said Mark Luschini, chief investment strategist at Janney Montgomery.

Treasury yields have the potential to act as a trip wire for stocks. When the 10-year edged to 3 percent earlier this year, the stock market was shaken. With the Fed now preparing to slow down its bond-buying, yields have been moving higher again, and better economic news is also a catalyst.

Stronger-than-expected consumer spending, up 0.5 percent in November, and surprisingly good durable goods, up 3.5 percent, helped drive the 10-year yield to 2.987 percent Tuesday, its highest level since Sept. 6, when it hit 3 percent.