Rising U.S. Treasury yields have yet to break the case for high equity valuations, according to a Sept. 14 JPMorgan report that argues earnings growth, productivity and corporate balance-sheet strength can offset part of the pressure from higher long-term borrowing costs. The bank placed the S&P 500 near 22 times expected 2026 earnings while estimating adjusted earnings growth of about 28%, a combination it said remains consistent with elevated valuations even as the 10-year Treasury yield approaches 5%.
The conclusion offers a more conditional reading of the latest bond-market selloff than the familiar assumption that higher yields automatically force all risk assets lower. Long-duration Treasuries have fallen about 10% over the past year, while the 30-year Treasury yield reached roughly 5.40%, its highest level in nearly two decades, according to figures cited in the report. The S&P 500’s forward price-to-earnings ratio contracted by roughly three turns during that period, yet the index rose about 16%.
JPMorgan’s framework suggests that the next move in earnings may carry more weight for stocks than a modest further increase in yields. That distinction also places cryptocurrency markets in a more difficult position: token valuations cannot be anchored to corporate earnings, although the relationship between Treasury yields and crypto prices has been inconsistent and does not support automatic crash predictions.
A yield threshold tied to earnings growth
JPMorgan examined market data dating to 1950 and found what it described as an inverted U-shaped relationship between the 10-year Treasury yield and S&P 500 valuation multiples. Multiples have, at times, remained resilient during the early stages of a gradual rise in yields. Compression has become more pronounced once yields crossed a level that markets could no longer absorb.
Using current earnings conditions, the report estimated that threshold at roughly 5% to 6% for the 10-year Treasury yield. The benchmark was near 4.97% in mid-September, according to the material provided.
The threshold is not fixed. JPMorgan found that slower earnings growth lowers the yield level that equity markets can tolerate before valuations face sustained pressure. Under an earnings-growth regime above 20%, its historical mapping associated a valuation multiple near 24 times with a 10-year Treasury yield around 6%. In a 10% to 20% earnings-growth range, the framework associated a roughly 20-times multiple with a yield near 5%.
The bank estimated the S&P 500 at about 18 times 2027 earnings, based on adjusted earnings growth of about 21% after removing one-off investment gains and losses. Its scenario analysis indicated that valuations could still re-rate higher if earnings growth remains above 15%.
That is a demanding condition. A multiple supported by rapid earnings expansion becomes vulnerable if profit forecasts are reduced, even if Treasury yields remain stable. The market’s tolerance for near-5% government borrowing costs therefore depends heavily on whether projected earnings translate into reported results.
AI premium dominates the index valuation
The report found a sharp split inside the S&P 500. JPMorgan valued 30 AI-related market leaders at roughly 30 times forward earnings, compared with about 19 times for the remaining S&P 500 constituents and 14.3 times for MSCI All Country World Index peers.
It attributed the premium for the AI-linked group to clearer earnings visibility, lower leverage and more stable shareholder returns. This concentration means aggregate index valuations can look richer than conditions facing many companies outside the largest technology and AI beneficiaries.
JPMorgan also connected equity valuations to productivity growth. It estimated that productivity gains between 1.5% and 2.5% could support an S&P 500 multiple of about 20 times at current yields. Productivity above 2.5%, it said, would provide stronger support.
Its two-stage dividend discount model produced an estimated equity risk premium of about 7.2%, placing it at the 69th historical percentile, while its long-term price-to-earnings-growth, or PEG, ratio stood near 2. The model linked current valuations to annual earnings growth of roughly 13% to 15%.
Those figures leave little room for disappointment in the highest-valued shares. They also complicate claims that a move above a single Treasury-yield level would mechanically trigger broad selling across every risky asset class.
Corporate funding delays the hit from higher rates
Higher rates are filtering through the economy unevenly, JPMorgan said. Many large U.S. companies entered the current period with fixed-rate debt issued at longer maturities, slowing the effect of rising market yields on their interest expense. The report also cited about $2.4 trillion in corporate cash balances, which can generate more interest income when rates rise.
Reference borrowing costs cited by the bank remained below earlier highs: 30-year fixed mortgage rates were around 6.8%, versus 8.1% in 2023; investment-grade corporate yields were about 6%, compared with 6.5%; and high-yield debt yields were around 7.7%, below 9.6%.
The pressure is more acute for consumption-sensitive businesses, residential and commercial real estate, capital-intensive sectors outside AI infrastructure spending, and companies with heavier leverage. Small-cap companies also face a tougher setup than large caps because of their greater reliance on short-term and floating-rate bank financing, the report said.
Sector performance could depend on the shape of the yield curve. JPMorgan associated bear steepening, in which long-dated yields rise faster than short-dated ones, with relative strength in cyclical sectors including energy and financials. A bear flattening was more favorable for technology. Utilities, real estate, communication services and consumer staples were identified as rate-sensitive, bond-proxy sectors.
Implications for digital assets remain indirect
For cryptocurrency traders, higher Treasury yields raise the opportunity cost of holding tokens that do not distribute cash flows. Risk-free government securities offering yields near 5% can draw capital away from speculative positions, particularly when liquidity conditions tighten.
Yet the supplied market narrative overstates the certainty of that relationship. Bitcoin and other digital assets respond to a combination of leverage, spot demand, stablecoin liquidity, regulatory developments, ETF flows, dollar strength and broader risk appetite. A 10-year Treasury yield moving above 5% would add to macroeconomic pressure, but it would not by itself establish a predictable price decline or justify universal trading instructions.
JPMorgan’s report argued that the recent rise in long-term rates reflected fundamentals more than a breakdown in confidence over Federal Reserve independence or U.S. fiscal credibility. It pointed to relatively stable long-end swap spreads and only modest increases in long-term inflation breakevens.
The equity market’s resilience rests on a narrow but measurable premise: earnings growth must remain strong enough to compensate for more expensive capital. Digital assets do not share that earnings buffer, leaving their performance more dependent on liquidity and changing demand for risk rather than a direct analogue to the S&P 500’s valuation framework.
For deeper insight into how rate moves shape crypto and equities, explore our guide on interest rates and Bitcoin.
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