10-year yield near 5% threatens 5% to 8% S&P 500 correction

A 10-year Treasury yield near 5 percent could trigger a 5 percent to 8 percent S&P 500 correction, JPMorgan Private Bank warns, as oil-driven inflation fears collide with September's seasonal weakness and the approach of US midterm elections.

The 5 percent level carries significant psychological weight, Grace Peters, global head of investment strategy at JPMorgan Private Bank, said in an interview, warning that a move into the 5 percent to 5.25 percent range would draw an immediate reaction from equities.

The 10-year yield has already climbed to 4.8 percent, its highest since January 2025, while the 30-year Treasury sits at a 19-year high. The rise follows a surge in crude after US strikes on Iran — Brent gained more than 5 percent to about $95 a barrel and West Texas Intermediate climbed nearly 6 percent to about $91 — deepening inflation concerns and expectations that the Federal Reserve will raise its benchmark rate. Fed Chairman Kevin Warsh signaled last week that the central bank is uncomfortable with the current pace of inflation. The S&P 500 fell 0.71 percent and the Nasdaq dropped about 1 percent on the day yields jumped, extending a global bond rout that pushed Japanese benchmark yields to a record and 30-year UK gilts to their highest since 1998.

Peters does not read the pullback as a structural break. She still ranks US equities as her top regional pick for the full year, with emerging markets also favored and Europe held neutral, arguing that a 5 percent to 8 percent drawdown would be a healthy reset rather than the start of a bear market. The timing is unusually sensitive: September is historically the S&P 500's weakest month, the lift from the second-quarter earnings season is fading, and the November midterm elections are approaching. Higher long-end yields also raise the discount rate applied to future earnings, pressing hardest on the high-valuation growth and technology names that carry the longest-duration cash flows.

Earnings Breadth Widens Beyond Tech

Corporate earnings remain the pillar of Peters' full-year optimism. US companies grew second-quarter profit about 30 percent and European peers about 15 percent, a pace she expects to slow. The difference this cycle, she said, is that the gains are not concentrated in technology — financials, industrials and utilities are also contributing, giving the market a broader base than in prior rallies. That breadth is one reason JPMorgan's core thesis, that a capital-spending super-cycle will feed an earnings super-cycle, has not changed.

AI Capex Faces a Return Test

Peters counts utilities among her favored sectors alongside financials and technology, arguing that AI infrastructure expansion is pushing electricity demand to new highs. Power-supply bottlenecks and memory-chip shortages, however, could constrain that buildout. The larger question is whether the surge in AI capital spending translates into returns high enough to justify valuations — a test that applies not only to the technology companies making the outlays but to the businesses across industries buying AI services. JPMorgan sees the bigger near-term risk not as the AI story being disproved but as high valuations, elevated yields and slowing earnings growth combining to force a periodic re-rating of the market.

Not everyone reads the yield move as a warning sign. Treasury Secretary Scott Bessent dismissed concerns on Monday, arguing that yields are flat measured across President Donald Trump's second term and that productivity growth will offset inflation pressures, while Matthew Klein of The Overshoot newsletter contends that higher government-bond yields reflect reinvigorated economic growth rather than rising inflation risk. "Another global rise in interest rates and do stocks now finally care?" Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, wrote. "I think it's for sure gaining more attention."

This article is for informational purposes only and does not constitute investment advice.