Stocks will probably suffer as traders return to work after the holidays and markets feel the impact of rising interest rates, Art Cashin of UBS told CNBC.

Trading desks have not been fully staffed over the holidays, notes Cashin, UBS's director of floor operations at the New York Stock Exchange. "So the real reaction will come, probably, after New Year's when we get to see it."

Stocks did not drop even though the yield on the benchmark 10-year Treasury note hit 3 percent last week, a psychologically important level.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

"It's been amazing," Cashin told CNBC, expressing his surprise. But he added that he doubts the markets will continue to ignore the rising bond yields.

But until the holiday season is over, the so-called Santa Claus rally is likely to continue, he
said. "For now the market seems to be determined. There are people still chasing yield. The pension funds are redirecting money. So it should carry through New Year, and we'll have something to really drink Champagne about this year."

The 10-year Treasury yield topped 3 percent briefly on Thursday, higher than it's been since September, before declining, AP reported. "There's a silver lining to see bond yields rise like this, because it's a sign that the economy is getting stronger," John De Clue, chief investment officer of U.S. Bank Wealth Management, told AP.

A large drop in unemployment claims boosted stocks last week, according to AP. Claims for unemployment benefits fell to 338,000, a drop of 42,000.

Trading volume has been low during the holiday week. For instance, the NYSE say about 1.96 billion shares traded on Thursday, compared to its daily average of 3.3 billion shares.

Stocks have remained on a tear. Just a few days from the end of the year, the S&P 500 is up 29.2 percent this year, 31.3 percent including dividends.

Signs of an improving economy as well as the Federal Reserve's reduction of its bond-buying have prompted bond yields to rise. Rising Treasury yields usually impact business and consumer loan rates across the board. For instance, 30-year mortgage rates have increased from about 3.3 percent in May to almost 4.5 percent, on average.

"We are starting to take the medication away from the bond market, but it's important to note that yields are still at historically low levels," said Dan Veru, chief investment officer of Palisade Capital Management.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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