This week's test: bank earnings and 5% yields

Good morning. A new week begins with one big question: how much can the US economy and stock market take at 5% yields? Stocks are near records, but Fed officials keep sounding the same note, rates stay higher for longer. Cleveland Fed President Beth Hammack said current rates aren't yet high enough to tame inflation.

Forecasters largely agree. In a Wall Street Journal survey, economists expected borrowing costs to stay elevated for a long time because of inflation, further hikes and government debt. Markets already price three quarter-point hikes by 2027. There's also the matter of AI companies borrowing hundreds of billions of dollars, making them the new heavyweights in the corporate bond market, which raises worries that other borrowers could get crowded out.

That's why this week's calendar matters. From Tuesday, JPMorgan, Goldman Sachs, Bank of America and Citi open Q3 earnings season. Banks are the first window into loans and delinquencies, so they should show how far high rates have seeped into the real economy. Wednesday brings September consumer prices, and some indicators pointing to a 2022-style jump have markets on edge. Today, Monday in the US, only the bond market is closed; stocks trade as normal.

Meanwhile, President Trump struck a deal with Putin to import 300,000 tons of Russian diesel. It's an attempt to hold down fuel prices before the midterms, but with tanker attacks continuing in the Strait of Hormuz, many say it isn't nearly enough.