'The market has had every reason to sell off' — and it hasn't

Even with bond yields hovering at more than 20-year highs, the stock market has barely flinched.

The S&P 500 ( ^GSPC ) rose Friday to sit less than 1% from its record high while the Nasdaq Composite ( ^IXIC ) was near an all-time high as a weak jobs report lowered expectations for a Federal Reserve rate hike this year.

Up until now, elevated oil prices, AI-related risks, and deteriorating market breadth have suggested a pullback may be just around the corner.

"The market has had every reason to sell off, and it hasn't sold off yet, and to me it feels like it's running out of time," Sean McLaughlin, chief options strategist at All Star Charts, told Yahoo Finance. "The path of least resistance appears to be higher."

Seasonality also leans bullish as October, while traditionally volatile, has posted a 63% win rate over the past 20 years.

And looking at the four-year presidential cycle, the S&P 500 has posted an average return of 18.3% over the next seven months during the past 50 years, McLaughlin noted.

"We've got earnings season coming up, and if we get any glimmer of good news, I think the market is going to be caught offside, and we could have a really significant rally over the next three to six months," McLaughlin said.

That doesn't mean the market's resilience hasn't been a head-scratcher, particularly as the 10-year Treasury yield has climbed to its highest level since 2002.

Wall Street anticipates yields on the 10-year can climb higher before they begin to weigh on valuations.

"Historical data show that valuations start compressing after 5.5%, and everyone from investors to corporations to consumers would have to redo the math on their investments," Fundstrat economic strategist Hardika Singh wrote in a note last week.

UBS strategists last week noted that yields become more concerning for stocks when economic growth begins to falter. That's not the case with a booming AI build-out in the US.

"We forecast S&P 500 earnings growth of 25% this year and 14% in 2027, which should help equities absorb moderately higher interest rates," Ulrike Hoffmann-Burchardi, chief investment officer Americas and global head of equities at UBS, wrote.

To spread risk, Hoffmann-Burchardi recommends buying stocks across global markets such as the US, Europe, and Asia.

At the same time, she suggests targeting major growth trends such as AI, power and resources, and healthcare ( XLL ).

Ines Ferre is a senior business reporter for Yahoo Finance.