Earnings Growth May Trump High Interest Rates for US Stocks
High interest rates may not be as damaging to US stocks as previously thought, according to JPMorgan. The bank believes that earnings growth is the key determinant of U.S. equity valuations' resilience. Data since 1950 indicates an 'inverted U-shaped' relationship between the 10-year U.S. Treasury yield and S&P 500 valuations; at current earnings levels, yields would need to reach approximately 5%-6% to significantly compress valuations.
As long as earnings growth remains above 15%, there is still room for valuation re-rating. In the event of a bear steepening of the yield curve, cyclical sectors such as energy and financials stand to benefit more; conversely, if the curve flattens, technology stocks are relatively favored.
Meanwhile, oil prices have risen due to an attack on the Saudi East-West pipeline, threatening export routes. The Dow Jones is expected to open at 9:30 PM MYT after a decline in futures trading.