The interest rate used to calculate mortgage rates is rising toward a level that could be problematic for the U.S. stock market.
The 10-year Treasury note yield traded at 2.97 percent on Tuesday, just three basis points below 3 percent. The benchmark rate has closed above the 3 percent nine times this year. Usually, the S&P 500 takes a leg lower after the 10-year breaks the level.
10-year yield (right axis) vs. S&P 500 (left axis) this year
Larry Benedict, CEO of The Opportunistic Trader, said this pattern of stocks falling as the 10-year breaches 3 percent could repeat itself.
"There is a huge divergence between the U.S., Asian and European equities," he said. "We think that once the 10-year hits 3 percent, that could trigger an unwinding out of U.S. equities and potentially into Europe and Asia."
The S&P 500 reached an all-time high late last month and is up 8 percent this year. Meanwhile, the Stoxx 600, which tracks European stocks, is down 3.6 percent in 2018. In Asia, the Japanese Nikkei 225 and the Shanghai Composite are both down 0.4 percent and 19.4 percent, respectively.