A few days ago I posted comments from bear(ish) Barry Ritholtz on why the recent drop in bond prices and increase in bond yields/interest rates could harm stocks. Here's the argument for the other side from the (almost always) optimistic Ed Yardeni, of Yardeni Research:

Is it safe? The jump in bond yields last week poses several possible risks for the stock market. Here are three of them and some reasons why I am not convinced that these risks will derail the bull market in stocks:

(1) Higher yields obviously increase the attractiveness of bonds relative to stocks. A yield of 5% on the 10-year Treasury is also attractive relative to the core PCED inflation, which recently fell to 2%. Nevertheless, at 5%, the bond has a P/E of 20 (i.e., the reciprocal of the yield). So the S&P 500, with a forward P/E of 15.5 currently, is still quite cheap relative to both bonds and inflation.

(2) Higher interest rates increase the cost of leveraged buyouts and might reduce (or limit the upside of) prices received by private equity investors when they try to cash out with an IPO. (See “Market Pressures Tests Resilience Of Buyout Boom,” WSJ 6/8.) While the anecdotal evidence certainly suggests that M&A and LBO activities have driven stock prices higher, the fact is that the bull market since 2003 has been entirely earnings driven. The market’s valuation multiple hasn’t risen as a result of all the financial engineering.

(3) Earnings could get hit hard if the backup in mortgage interest rates deepens and prolongs the housing recession, causing it to spread to consumer spending and the broader economy. The housing recession hasn't spread so far, but it could if it doesn't hit a cyclical bottom soon. On the other hand, the Fed is very unlikely to raise the federal funds rate in this scenario. That should keep bond yields from rising much higher. In other words, a flat yield curve at 5.25% may be just what the Doctor (Bernanke) ordered to allow the economy to grow just below its potential, thus keeping inflation at bay.