Higher yields haven’t derailed equities (for now)

Equities can absorb gradually higher yields while earnings remain strong, but a rapid rate increase without corresponding growth would threaten valuations and long-duration stocks.

• Since March, the US 10-year Treasury yield has risen by more than 80 basis points to around 4.8%, while the S&P 500 remains more than 11% above its start-of-year level.
• A move toward the psychologically important 5% yield level could renew pressure on valuation multiples, especially for long-duration equities, even if earnings remain the main market driver.
• Candriam favours companies with visible earnings growth, cash-flow generation, strong balance sheets and reasonable valuations, while retaining structural exposure to AI, healthcare innovation, electrification and grid investment.
• The US trades at 19.2 times forward earnings versus roughly 15 times for Europe; Candriam downgraded US utilities to neutral, upgraded European banks and capital goods to overweight, and raised automobiles and components from underweight to neutral.
• Korea and Taiwan remain the preferred emerging markets for hardware and semiconductors, while caution has increased on China because of record-low bank margins, weak credit creation and recapitalisation dilution; Brazil is preferred over Mexico as commodity dynamics improve.

Takeaway: Investors should remain constructive but selective, favouring earnings visibility and balance-sheet strength while monitoring the risk that yields rise sharply toward 5% without stronger growth or profits.