How Do Rising Rates Impact Global Equities?

Rising interest rates do not automatically hurt global equities; their impact depends mainly on the cause and speed of the increase and on whether earnings growth can offset valuation pressure.

• Rates are rising across major economies because of energy and supply shocks, tighter monetary policy, larger government borrowing needs, and capital demand linked to the artificial-intelligence buildout.
• When yields rise gradually with resilient demand, productivity, capital spending and improving earnings, stock prices and bond yields can rise together; inflation shocks, fiscal stress or rapid tightening are more damaging.
• A 10-year U.S. Treasury yield above 5% increases the potential for negative stock returns, while higher discount rates reduce the present value of future cash flows and can compress equity multiples.
• The authors favor the United States because of resilient earnings, AI and capital-spending tailwinds, view Europe and emerging markets selectively, and see Japan as constructive while warning about valuation, energy and AI-capex concentration risks.
• Banks, selected energy, materials and industrial companies may benefit, whereas heavily indebted businesses, small companies dependent on debt markets, real estate, utilities and some long-duration growth stocks may face pressure.

Takeaway: Investors should remain aligned with strategic asset allocations rather than broadly retreat from equities, while diversifying across regions, sectors and styles and monitoring whether yields keep rising, inflation worsens or credit stress emerges.