JPMorgan: AI-Driven Earnings Growth Can Help U.S. Stocks Withstand 10-Year Yield Up to 6%
On Oct. 27, 2026, JPMorgan released a thematic research report arguing that, with AI-driven productivity gains supporting high valuations, U.S. stocks can withstand a 10-year Treasury yield rising to 5.5%-6.0% if strong earnings growth forecasts are realized. The report noted that market expectations have shifted from rate cuts to hikes, with investors repricing for "higher for longer."
Strategists led by Dubravko Lakos-Bujas cited about 80 years of data showing an inverted-U relationship between the 10-year Treasury yield and the S&P 500 P/E ratio. During periods when EPS growth was above trend (around 15% year-over-year), equity multiples did not start to compress until the 10-year yield rose to about 5%. Consensus currently implies EPS growth above 20% for both 2026 and 2027, with the S&P 500 trading at about 18 times forward earnings based on 2027 EPS. The report said that if these strong growth forecasts are realized, history suggests valuations have room to expand and the market should withstand 10-year yields near 5.5%-6.0%, especially with AI-driven productivity growth underpinning the high-valuation environment.
The report also highlighted risks including weaker earnings growth, a sharp bond market selloff, and potential inflation and growth shocks from escalating Middle East geopolitical tensions. It viewed these as non-base-case scenarios. JPMorgan said second-order effects of high rates on the AI capex cycle and consumers are likely limited, given healthy balance sheets and record-high net worth among middle- and high-income households.
On sector rotation, the analysis said bearish steepening tends to favor cyclical sectors like energy and financials, while bearish flattening favors technology. Utilities, real estate and other long-duration sectors face the most negative exposure. In the base case, JPMorgan maintains a preference for growth/quality growth, but would rotate to low volatility if the hiking cycle expands. The bank also constructed three thematic baskets for investors: high-rate beneficiaries, low-rate beneficiaries, and rate-insensitive strategies.
