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

Major U.S. stock indexes remain near record levels, but the headline numbers may be glossing over less comfortable conditions beneath the surface. Elevated oil prices, rising Treasury yields and a Federal Reserve signaling the possibility of further interest-rate hikes are all weighing on the market’s foundation, even as the major averages hold up.

Each of those forces matters for different reasons. Higher oil prices feed into corporate costs and consumer budgets, while rising Treasury yields raise the return available on safer assets and can pressure equity valuations, particularly for growth-oriented companies. A Fed prepared to tighten further adds another layer of uncertainty, since the path of rates influences borrowing costs across the economy.

For investors, the key takeaway is that a calm index level does not necessarily mean a calm market. What to watch: whether oil and yields stabilize or continue climbing, and how Fed communications shape expectations for policy. Breadth — how many stocks are participating in any advance — can also reveal whether the rally rests on a narrow base or a broad one.