"If you start pushing up north of 4 percent, stocks will pay attention," said Jordan Kotick, global head of technical strategy at Barclay's Capital. Kotick said 4 percent has proven to be a barrier, including the last time the 10-year reached it in April.
"I think the magnitude and trajectory does raise some concerns," said Jeffrey Kleintop, chief market strategist at LPL Financial.
"I think if we get much above 4 percent, I think stocks would have to pause and consider the economic ramifications of what that might be, and whether the Fed would have to take any additional action to keep rates down, and what that might mean."
But Jack Ablin, chief investment officer at Harris Private Bank, says there's no special level that will trigger a flight from stocks.
"I look at valuation differential between stocks and bonds. It's as gaping a difference as I've ever seen. Historically, I like to look at earnings yield on the S&P 500, which is 7.2, and I match it up against the 10-year BBB bonds, which are about 4.9 percent. Historically, those are roughly the same," he said, noting the current large disparity.
"My conclusion is stocks are probably fairly priced. Bonds are overpriced, yields too low... In theory, rates should be able to move higher without impacting valuations in stocks one iota. We're calling for roughly a 100 basis-point rise in rates on top of this," he said.
Ablin said that move would not necessarily derail stocks. "There's still an adequate cushion in my view that rates can move higher without upsetting the apple cart. I just don't know where the magic line is," he said.
Ablin issued his outlook for 2011 on Wednesday. "Stocks are reasonably priced, so I think we could eke out modest gains. My guess for 2011 is 8 percent is going to be the best returns we're going to see," he said.
Stocks Technically Sound
Stocks have side-stepped the rise in rates so far.
"The stock market seems pretty good. We felt some money was coming out of the bond market into the higher-yielding names three to four months ago..that was what we saw in MLPs (master limited partnership), utilities, telecoms like Verizon and AT&T ," said Paul LaRosa, technical analyst at Maxim Group.
"That to me was a sort of warning for the bond market," he said.
LaRosa said the complexion of the stock market is different than it was earlier in the year.