Equities Can Withstand Higher Bond Yields As Earnings Stay Firm, Says JPMorgan: Report

JPMorgan strategists expect the recent pressure from higher borrowing costs to fade as earnings remain firm and bond yields retreat from their recent highs, according to Barron's

• JPMorgan’s Mislav Matejka said the recent hit to equities from higher bond yields should not persist.
• The firm expects companies to continue meeting elevated earnings expectations while inflation remains contained.
• The 10-year Treasury yield traded around 5.26% Monday, while the two-year stood near 4.81%.

JPMorgan strategist Mislav Matejka reportedly expects equities to withstand the recent spike in bond yields, arguing that resilient economic growth and continued earnings delivery should help offset pressure from higher borrowing costs.

“Equities got hurt by the spike in bond yields, but we do not think this will persist,” Matejka wrote, according to Barron’s. The analyst expects yields to pull back from recent highs and said the Federal Reserve’s tightening cycle has reflected underlying economic strength.

The 10-year Treasury yield was around 5.26% early Monday, while the two-year yield traded near 4.81%. The 10-year recently reached 5.34%, its highest level since 2002.

Earnings Remain A Key Support

Aaccording to Barron’s, Matejka expects companies to continue delivering against elevated earnings expectations while inflation remains contained, 

JPMorgan strategists led by Matejka see equity sentiment as “overly bearish” after stocks recently came under pressure from the bond selloff, reported Investing.com. The team noted that yields have risen about 100 basis points this year even as equities posted double-digit gains.

The strategists expect robust earnings delivery as the third-quarter reporting season begins, with earnings revisions remaining positive across most regions. They also expect cyclicals, including financials, industrials, and commodities, to participate in a recovery alongside technology, per the report.

Why Yields Have Been Rising

According to a JPMorgan Private Bank analysis published in September, the broader rise in Treasury yields is driven primarily by resilient economic growth, higher inflation expectations, rising risk premiums, and increased private-sector borrowing rather than U.S. fiscal concerns alone.

That analysis said the economic impact of higher yields should remain limited while the 10-year stays within its recent range, but noted that a move toward 6% would signal a different market environment.

At the time of this writing, the iShares 7-10 Year Treasury Bond ETF (IEF) and the iShares 20+ Year Treasury Bond ETF (TLT) were trading marginally in the green. On Stocktwits, the sentiment around both tickers remained in the ‘bullish’ territory.

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