JPMorgan: US Treasury yields approach the 5% "warning line," stock markets may face a 5%-8% correction

According to the Zhihu Finance APP, Grace Peters, Global Head of Investment Strategy at JPMorgan Private Bank, stated that rising bond yields pose a major risk to global equity markets, and that September has historically been a weak month for US stocks. Peters believes that US and European stocks still have room for further gains this year, but she warns that, before risk events such as the US midterm elections in November, the market could see a correction of 5% to 8%. However, she considers this a healthy profit-taking phase rather than a structural collapse.

US Treasury yields approach the 5% "warning line", markets may see knee-jerk selloff

Rising bond yields have become a central concern for equity investors. Amid worries that the Iran situation and tariff policies might push inflation higher, the 10-year US Treasury yield has climbed to 4.8%, nearing the 5% threshold widely seen as bearish for equities, while the 30-year US Treasury yield is at its highest level in 19 years.

Torsten Slok, Chief Economist at Apollo Global Management, said Wednesday that US Treasury yields could rise further, emphasizing that the upward pressure is mainly driven by the Iran war and tariff policies and has little to do with US fiscal conditions. Slok noted the market’s concern about US policymaking is actually less than its concern about Japan and Germany.

Meanwhile, speculation is mounting that the Federal Reserve may be forced to raise interest rates, which would push yields back to levels seen before Treasury Secretary Yellen expanded bond buybacks to lower long-term borrowing costs. Data shows the probability of a rate hike at the September meeting implied in market pricing has already risen to 69%.

Peters of JPMorgan stated: "5% will have a psychological impact, and I believe the stock market may see a knee-jerk reaction. Especially considering seasonal factors in September, the midterm elections, and the fact that the Q2 earnings season catalyst has passed."

In terms of earnings, Peters said that the trend of 30% earnings growth for US companies and about 15% for European firms in Q2 is unsustainable and the growth rate is expected to slow. But she emphasized that the breadth of this round of profit expansion—with financials, industrials, and utilities all making contributions—reflects a healthier market structure compared to one driven solely by technology.

Real estate and auto markets feeling the chill, while AI stands out?

Rising yields are already having a tangible impact on the most sensitive sectors of the US economy, with both the housing and automobile markets feeling the pressure.

In his report, Slok wrote that the median US house price has reached $400,000, while most US households can only afford a home worth about $300,000. This rising entry barrier has pushed the median first-time homebuyer age from 30 in 2008 to 40. Meanwhile, the delinquency rate for multi-family housing has climbed to its highest level since 2004, even surpassing the peak following the global financial crisis.

Slok stated: "Interest rates act as a constraint on the housing market, but not so for the AI sector."

This view echoes JPMorgan’s sector preferences. Peters lists utilities, financials, and technology as her top picks. She notes that utilities not only power AI infrastructure but, more crucially, that power supply limitations—like memory chip shortages—could become bottlenecks for AI expansion.

JPMorgan’s core view remains that the capital expenditure super-cycle will drive an earnings super-cycle, with the US and emerging markets as the bank’s preferred equities, while Europe is seen as neither a winner nor a loser.

In Peters’ view, the real "midterm test" will be whether large-scale AI investment can deliver returns on capital—both for the big technology companies making heavy investments and for end-users across industries who are procuring AI services.