JPM Equity Strategy Equity

J P M O R G A N Global Markets Strategy 14 September 2026

Equity Strategy Equities and rising bond yields

• Last week’s push in Brent above $100, together with the accompanying impact Equity Strategy on bond yields, was the culprit that finally begun to hurt the equity market, which Mislav Matejka, CFA AC was up to that point very resilient, underpinned by an improvement in both ( activity and in earnings seen in the past months. The question is, should one join the selling? Indeed, in the eyes of many, the current challenging backdrop can J.P. Morgan Securities plc

only get worse. Prabhav Bhadani, CFA ( • We accept that near-term oil price direction will likely dictate risk taking, and one doesn’t know what is the pain threshold of either the US or the Iran side. J.P. Morgan Securities plc Seasonals are poor at present, and investors are nervous with respect to inflation Nitya Saldanha, CFA and bond yields moves. While any of these could lead to more market weakness ( over the next few weeks, we believe that one should not extrapolate the potential J.P. Morgan Securities plc volatility for too long. In our view, Q3 results, out from October, will end up reassuring the equity market. Of course, any further spike in oil means lower Karishma Manpuria, CFA ( equities, but equally, if one turns bearish as oil is up, one risks being whipsawed on any subsequent de-escalating headlines. The playbook of “escalate to de- J.P. Morgan India Private Limited escalate” was clearly in effect numerous times in the past 2 years. Anamil Kochar, CFA • Turning to bond yields, for most of the year, equities absorbed the rise in bond ( yields well, with MXWO up 11% ytd, against bond yields up 80bp. This is in part J.P. Morgan India Private Limited because the move was driven by activity and earnings upgrades, with real rates up, rather than due to longer term inflation expectations rising. 5y-5y inflation forwards are not reacting to Brent spike… • We believe that the positive equities-yields correlation can stay in effect, ie, one also, as term premia is at highest in 10 years, bond could have in 6 months higher yields and higher equity prices from current, but yields upmove might not keep accelerating… margin of error is getting smaller.We have always maintained that around 140

5-5.5% 10 year US yield, the correlations are at an increasing risk of 2.7% 120

flipping. The key will be whether the drivers of rising yields change, and 2.2% 80

whether their levels are already prohibitive for economy. We do not think 1.7% 40

either of these necessarily becomes a problem over the next months. 1.2%

US 5Y - 5Y inflation forwards Brent ($/bbl) - rhs

• We note 5y-5y inflation forwards are not reacting to recent oil price upmove, …rising bond yields have vast majority of time in contrast to historical. Also, term premia are up to highest in 10 years, a supported the outperformance of high beta, especially when the moves are measured… chunk of normalization is behind us. Wage growth is still trending lower – latest payrolls showed strong print, but also the slowest hourly earnings growth 40% 300

in 5 years. Finally, nominal US growth is averaging around 5-6%, so bond yields 30% 200 20%

at or below these levels should not be seen as a headwind. The continued strong 10%

credit growth performance in both the US and in Europe is a proof of that. -10%

• Big picture, as long as Fed hikes are measured, and occur against the backdrop -30%

of robust growth in earnings, without inflation becoming de-anchored, equities World Cyclicals ex Tech vs Defensives (%y/y) US 10Y bond yield (bp, chg oya, rhs)

should weather that. A Fed hike this week might be taken better by the market …Growth style EPS momentum potentially peaking vs Value? than a pass, in terms of credibility building. One should end up using the 150

weakness catalysed by renewed oil price spike to add, we think volatility will 140

give way to better trading as Q3 results kick in. 130

• In terms of market internals, rising yields favoured Cyclicals most of the time, 110

especially if growth outlook was not getting challenged. The message from 100

sector leadership has been far from risk-off in the past months. Cyclicals are 90…