Wall Street's yield watch may hold key to stocks' next move
SPY•JPMorgan said stabilizing Treasury yields could support US equities, citing earnings momentum and a resilient economy despite inflation concerns and valuations near 20 times forward earnings. The 10-year Treasury yield recently topped 5%, reaching 5.36% earlier this month.
1. Yields and equities
JPMorgan said the recent rise in the 10-year Treasury yield was driven largely by markets repricing expectations for Federal Reserve policy, rather than a sharp deterioration in economic fundamentals. The yield recently climbed above 5%, touching 5.36% earlier this month before easing toward 5.1%.
2. Support and risks
The bank pointed to positive earnings revisions, resilient US consumer spending and global business activity as signs that growth remains on solid footing. It said US equities trade at roughly 20 times forward earnings, leaving less room for disappointment relative to real bond yields. A fresh acceleration in inflation that prompts the Fed to resume tightening and pushes yields higher is the main threat to its outlook.
