Look closer, and Wall Street’s rally is showing cracks

Beneath the headline-level calm of major U.S. stock indexes trading near record highs, several crosscurrents suggest the rally may be narrower than it appears. Elevated oil prices are keeping input and transportation costs high across the economy, while rising Treasury yields offer investors an increasingly competitive alternative to equities and raise the cost of corporate borrowing.

At the same time, the Federal Reserve has signaled it is bracing for additional interest-rate hikes as it works to bring inflation toward its target. Higher rates tend to pressure equity valuations, particularly for companies whose earnings are weighted toward the future, and can weigh on rate-sensitive sectors such as real estate and utilities.

For market observers, the key question is whether corporate earnings can continue to justify current valuations if borrowing costs and energy prices stay elevated. Watch upcoming inflation and employment data, Fed commentary, and oil price trends — each could test whether the indexes' record-level glow reflects broad strength or a thinner foundation.