Treasury Yields Break 5%, But JPMorgan Sees Earnings Supercycle Persisting

The 10-year U.S. Treasury yield has broken through the 5% threshold for the first time since 2007, marking a significant shift in global risk asset pricing. According to JPMorgan Chase's Global Investment Strategist Grace Peters, this development is largely driven by robust economic growth data, a surge in bond supply from AI infrastructure financing, and rising oil prices.

Peters notes that if these macro headwinds don't subside, the 10-year yield will remain elevated. The rise in yields has profound implications for equities, as it increases the discount rate in valuation models, putting pressure on high-valuation growth stocks. The S&P 500 currently offers a composite dividend yield of around 1%, while the Schwab U.S. Dividend Equity ETF (SCHD.US) has delivered roughly 3% over the past year.

Despite these challenges, Peters remains confident in the stock market's ability to absorb rising yields and expects an earnings supercycle to persist. She points out that equities have already priced in a significant portion of interest-rate risk and advises investors to focus on companies with pricing power and high earnings visibility.

Peters' view reflects a broader investment proposition, where structurally higher interest rates require more selective stock picking rather than top-down asset allocation calls. The strategist notes that rising yields are not solely driven by tighter monetary policy but also reflect expanding tech capital expenditure demand in the real economy.