Last week, the 5% on the 10-year was the data point to watch. It broke, and stocks kept goinganyway. The 10-year closed at 5.17%, up from 5.00% a week ago. After finishing Thursday at 5.18%, after reaching 5.22%, the highest in 19 years. This morning (9/28), it was above 5.23%.The 30-year hit its highest level since 2004. Yet the S&P 500 (+1.2%), the Dow (+0.3%) and theNasdaq (+2.1%) all finished up last week, while the Russell 2000 fell 0.8%, which tells youexactly who feels higher borrowing costs first.

The tone shifted midweek. Strong PMI data on Wednesday raised expectations for another ratehike, and Fed officials continued to emphasize inflation risks and the potential need for furthertightening. By Friday, traders were pricing a 64% chance of a hike in October. Big tech has beenable to look past that. Smaller companies and anything that depends on borrowing have not.

Three things we are watching this week:

1. The 10-year and AI valuations.

Yields hit fresh highs globally last week and the strain is showing at the edges of the AI buildout. Oracle sent a notice citing a force majeure on a data center under construction. That makes Micron’s report Wednesday after the close the week’s biggest earnings test. A miss or soft guidance would hit the whole AI trade at the worst possible moment for valuations.

2. Oil and Iran.

WTI fell 7.9% to $92.41, its first weekly drop since late August, while Brent edged up to $104.32. Friday’s slide came on hopes the Strait of Hormuz could reopen, but Trump rejected Iran’s proposal on Saturday, and the Wall Street Journal reported he sees renewed bombing as likely after the midterms. Expect some of Friday’s decline to reverse, and watch whether Brent holds above $100.

3. Jobs and the Fed.

A packed calendar (JOLTS, consumer confidence, PCE, final Q2 GDP, ISM and many Fed speeches) builds to Friday’s jobs report, the first full labor read since the September hike. A hot jobs number plus a firm PCE print would push the odds of an October hike even higher. A soft one gives bonds and small caps room to breathe.

A good Micron report, a cooler jobs number, and steadier oil could give stocks more room tolook past the bond market. The risk runs the other way if PCE comes in sticky and payrollssurprise to the upside, especially with Brent still above $100. This could make 5.25% on the 10-year the floor rather than the peak.

Stocks proved last week that they can absorb a 5%+ 10-year yield for now. The bigger questionis whether they can do it for a quarter. Higher rates take time to work through the economy,pressuring borrowing costs, investment, and ultimately valuations. That keeps us focused oncompanies with solid fundamentals, strong cash flow, and real earnings growth. At 5%+, thehurdle rate is higher, and solid earnings matter even more.