Rising bond yields pose a key risk to global equities as they navigate the historically weak month of September, according to JPMorgan Chase & Co.’s Grace Peters.
Peters sees further upside for both U.S. and European stocks this year, but she cautioned that a 5% to 8% correction remains possible in the run-up to risk events like November’s U.S. midterm elections and would constitute a healthy pullback rather than a structural breakdown.
Rising bond yields have become a key concern for equity investors. Increased fears that rising oil prices will fuel inflation have pushed 10-year Treasury yields to 4.8%, approaching the 5% level often viewed as negative for stocks, while the 30-year yield is at a 19-year high. There’s growing speculation that policymakers will be forced to raise rates, pushing yields back to levels seen before Treasury Secretary Scott Bessent expanded buybacks in an effort to contain long-term borrowing costs.
“Five percent psychologically has an impact, and I think you could see a knee-jerk reaction from stocks to that regard. Particularly given the factors we mentioned around September, the midterms, and the fact that the catalyst of the second-quarter earnings season has passed,” Peters, the global head of investment strategy at JPMorgan Chase Private Bank, said in a Bloomberg Television interview.
On earnings, Peters said U.S. second-quarter earnings growth of 30% and an increase in Europe of around 15% are unsustainable and should be expected to taper. Still, she argued that the breadth of the expansion—with financials, industrials, and utilities all contributing—reflects a healthier market than one driven solely by technology.
JPMorgan’s core thesis remains a capital expenditure supercycle driving an earnings supercycle, Peters said, with the U.S. remaining the firm’s preferred equity region alongside emerging markets, while Europe is characterized as neither winning nor losing.
Peters flagged utilities as a preferred sector alongside financials and technology, citing not only their role in powering AI infrastructure but also the risk that power constraints—alongside memory chip shortages—could act as a binding limit on AI expansion.
The real “medium-term test,” she said, will be demonstrating that massive AI investment is generating a return on investment capital—both for the companies spending and for those buying the services across all sectors of the economy.
This article was provided by Bloomberg News.