Following the Federal Reserve's 25-basis-point rate hike on Wednesday, markets staged a dramatic reversal the next day rather than extending the previous risk-off trades. US equities and bonds rallied in tandem, with AI chip stocks leading the technology sector higher and short covering amplifying the gains. On Thursday, the S&P 500 reclaimed its 50-day moving average, while the Nasdaq led major indices as beaten-down AI semiconductor names staged a robust rebound.

This sharp market turnaround aligns with themes discussed at JPMorgan's 2026 Global Macro Conference held on September 10, which brought together 15 macro and market speakers. The core conclusion: in the current cycle, stocks and long-end Treasury yields can rise simultaneously, and rate hikes alone are insufficient to end the US equity bull market.

Rate Hikes Alone Won't Break Equities; 5.5%-6% Is the Critical Threshold

JPMorgan believes AI capital expenditure expansion and corporate earnings remain the core pillars supporting equity markets, while fiscal deficits, increased Treasury supply and rising term premiums continue to push long-end yields higher. The real concern is not rising yields per se, but rather the 10-year Treasury yield breaking above the 5.5%-6% range, particularly if it surges there too quickly.

Compared with past cycles, US equities are becoming less sensitive to interest rates. As AI, healthcare and services account for a larger share of the economy, the traditional interest rate transmission mechanism has a weaker constraining effect on equity valuations. JPMorgan's equity strategy team projects the S&P 500 reaching 8,000 points by year-end, arguing that earnings growth, lighter positioning and valuations that have yet to reach extreme levels still provide support.

However, this resilience has its limits. The conference concluded that the 5% yield level that markets previously viewed as sensitive has shifted higher, with the range that genuinely pressures equities likely now at 5.5%-6% for the 10-year Treasury. Technology and growth stocks comprise approximately 34% of the S&P 500, making them more sensitive to forward earnings expectations and long-end rates.

Furthermore, the speed of yield increases matters more than the absolute level. A slow, orderly rise can still be absorbed by earnings growth, but a rapid spike could simultaneously hit valuations and corporate capital expenditure plans.

AI Investment Continues to Expand, but Constraints Have Shifted from Demand to Supply

High interest rates have yet to significantly weaken the AI capital expenditure cycle. The combined 2026 capex guidance from America's five largest hyperscale cloud companies exceeds $750 billion, with projections surpassing $1.1 trillion by 2027. By 2030, cumulative AI capital spending could reach $5.5 trillion.

JPMorgan estimates that investment-grade corporate credit markets will provide more than $2.1 trillion in financing for data centers over the next five years, with high-yield bonds and leveraged loans contributing an additional $350 billion or so.

Meanwhile, the primary constraints on AI investment are shifting from demand to power supply, transmission infrastructure, land availability and permitting approvals. US grid load growth has accelerated from roughly 1% to 3%, yet transmission project approval timelines remain lengthy. As long as infrastructure keeps pace, AI capital expenditure can still translate into productivity gains, potentially contributing approximately 0.5 percentage points to labor productivity growth over the next year or two.

This explains why US equities can tolerate higher interest rates: if AI investment ultimately materializes as revenue and productivity growth, earnings expansion can partially offset valuation pressure from higher rates.

Long-End Yields, Fiscal Trajectory and Geopolitics Are the Risks That Truly Matter

The rise in long-end yields is not unique to the United States. European yields are also moving higher, suggesting that fiscal supply and term premiums may matter more than AI investment itself. According to the New York Fed's survey, the 10-year Treasury term premium has risen to approximately 125 basis points, reflecting persistent market concerns about US long-term fiscal sustainability.

Geopolitics could reignite inflation through oil prices. JPMorgan's commodities team projects that under a "perpetual conflict" scenario, Brent crude could average $87 per barrel in 2027, notably higher than the $64 per barrel projected under a peace scenario.

Domestically, "affordability politics" may continue to reinforce fiscal expansion. A conference poll showed that 75% of participants expect Congress to remain divided after the midterm elections, while the cost of living remains one of the primary financial pressures on American households.

Therefore, the real question facing markets is not an either-or choice between rate hikes and rising equities, but whether earnings and AI investment can continue to outpace interest rate pressures. As long as long-end yields rise in an orderly fashion, stocks can still advance alongside Treasury yields. However, once the 10-year yield rapidly approaches or breaks through the 5.5%-6% zone, this equilibrium could genuinely come under threat.