JPMorgan: Equities Can Withstand Higher Yields on Strong Corporate Health

Global equities should be able to absorb the recent surge in bond yields, according to JPMorgan strategists, who point to robust corporate profitability and underleveraged balance sheets as key pillars of support for the market.

In a note led by Mislav Matejka, the bank's strategists said that while the breakout in Brent crude above $100 and the U.S. 10-year Treasury yield's move toward 5% have weighed on stocks, the impact has been limited. They characterize the recent downturn, which saw the S&P 500 fall 2% from its August highs, as a market "digesting an oil and rates shock, rather than repricing a collapse in earnings."

Strong Profits and Low Debt Provide Buffer

JPMorgan highlights that corporate fundamentals remain exceptionally strong across major developed markets. The strategists noted that profit margins in the U.S., Europe, and Japan are "generally very healthy" and tracking above their long-term averages.

Several factors underscore this corporate resilience:

Ad

• Broadening Earnings: The global share of companies expected to post positive earnings-per-share growth in 2026 is now above 80%, indicating strength beyond the technology sector.
• Low Leverage: Corporate balance sheets are underleveraged, with net debt-to-equity ratios running 20-40% below historical averages.
• Manageable Debt: With an average corporate debt duration of 5-6 years, most companies are not immediately vulnerable to the recent increase in interest rates.

Inflation Expectations Remain Anchored

The strategists also observed that, unlike in 2022, long-term inflation expectations have not shown signs of becoming de-anchored despite the oil price spike. Measures such as 5-year, 5-year forward inflation swaps have held steady.

This stability suggests that markets view the oil shock as temporary. According to JPMorgan, this creates a "better backdrop for equities to look through near-term volatility." While poor seasonality in September could extend market choppiness, the bank expects fundamentals to reassert themselves in October.