Recently, the U.S. economic data has been performing well, which has cooled expectations for rapid interest rate cuts by the Federal Reserve, forcing a correction in the U.S. stock market. The yield on the 10-year U.S. Treasury bond has returned to the 4% mark, and is "high interest rates" back again?

Earlier this week, the yield on the 10-year U.S. Treasury bond rose back above 4%, the highest level since early August. The Federal Reserve's interest rate cut bets are decreasing, and the swap market expects a maximum of two 25 basis point rate cuts by the end of the year, while two weeks ago, there were expectations for two cuts.

Ed Yardeni, a Wall Street veteran and founder of Yardeni Research, said:

"After the strong employment report on Friday, the market consensus may shift towards not rushing to further loosening."

The uncertainty of the U.S. economic outlook is relatively high.

The U.S. employment data is performing well, and the service industry is also doing well, with the stock market hovering around historical highs on both sides of the Atlantic. However, risks such as the U.S. election and geopolitical tensions still exist, and the uncertainty of changes in the economic outlook is relatively high.

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Therefore, the major issue facing the U.S. stock market is how to deal with the changing outlook. J.P. Morgan strategist Mislav Matejka said:

"When the U.S. stock market decouples from the Federal Reserve, the market assumes that economic growth will accelerate, but the current situation is exactly the opposite—the key driver of the stock market will still be the growth outlook. Although the market generally accepts the expectation of a soft landing, it may take longer to confirm."Msika and Barnert have indicated that the forthcoming data will be crucial for market sentiment, particularly the CPI inflation figures due on Thursday this week. Bank of America strategists, including Ohsung Kwon, have noted:

"Under improved macro data, equities should be able to withstand a minor upside inflation surprise, but a larger surprise could introduce uncertainty into the easing cycle and increase market volatility."

According to data from Bloomberg, the options market has already raised the implied volatility of the S&P 500 index to approximately 1.1%, slightly higher than the 0.9% from last week.

How to respond to the changing outlook?

Msika and Barnert suggest that investors need to increase their exposure to improving economic data, especially given that the current U.S. economic data is stronger than that of Europe. Additionally, investors are beginning to worry about the impact of high interest rates.

As interest rates rise and risks emerge, the volatility index is also on the rise. The emergence of a multitude of risk events has forced the market to collectively hedge over the past week.

At the same time, market pricing complicates the situation and, to some extent, makes the U.S. stock market more fragile. Charlie McElligott of Nomura Securities has stated that the risk of systematic investors reducing long-term leverage in the interest rate market is "absolutely huge."