Earnings Growth Outshines High Interest Rates for US Stocks

JPMorgan's analysis suggests that earnings growth is the key driver of US equity valuations' resilience. Data from since 1950 shows an 'inverted U-shaped' relationship between the 10-year US Treasury yield and S&P 500 valuations.

At current earnings levels, yields would need to reach approximately 5-6% to significantly compress valuations. JPMorgan notes that as long as earnings growth remains above 15%, there is still room for valuation re-rating.

The yield curve's steepening or flattening will impact different sectors differently. A bear steepening will benefit cyclical sectors like energy and financials, while a flat curve will favor technology stocks.