Why equities can still thrive as bond yields rise

Equities can continue to advance despite higher bond yields because earnings growth and resilient economic activity are currently outweighing the valuation drag from rising discount rates.

• US 10-year Treasury yields reached 5.27% in September 2026, up from 4.14% a year earlier, while the S&P 500's trailing EPS growth rose to 31% from 11.5%.
• US core CPI fell to 2.4% in August 2026 from 3.1% a year earlier, wage growth was 4.1%, and 10-year breakeven inflation remained stable at 2.36%.
• The JP Morgan manufacturing PMU rose to 53 in September, and Robeco's business cycle indicator recorded expansion for the 14th consecutive month; US GDP growth in the second quarter was revised to 2.2% from 1.5%.
• Robeco argues that inflation remains contained because companies are not fully passing higher energy costs to consumers, while a low-hire, low-fire labor market is limiting wage pressure; however, higher mortgage rates are weakening US housing affordability.
• The portfolios stayed long global equities, especially in the US and emerging markets, remained long emerging-market debt, added gold and US dollars, and increased European high-yield hedges because Europe faces weaker growth and greater fiscal risks.

Takeaway: Investors should not automatically sell equities when yields rise, provided earnings growth remains well above the cost of capital and yields rise for growth-related rather than inflationary reasons; selectivity is particularly important in Europe, and the outlook remains exposed to energy shocks and weaker consumer spending.