JPMorgan Private Bank's global investment strategy chief, Grace Peters, has flagged rising bond yields as a major threat to global equities, with September historically being a weak month for US stocks. Peters sees room for further gains in both US and European markets this year, but cautions that a 5% to 8% correction could unfold before risk events such as the November US midterm elections. She views this as healthy profit-taking rather than a structural breakdown.

With the 10-year Treasury yield climbing to 4.8%—approaching the 5% level widely seen as bearish for stocks—bond yields have become a central worry for equity investors. Concerns that Iran tensions and tariff policies could stoke inflation have also pushed the 30-year Treasury yield to a 19-year high. Torsten Slok, chief economist at Apollo Global Management, said Wednesday that Treasury yields could move even higher, though he emphasized that the upward pressure is driven mainly by the Iran war and tariff policies, not by US fiscal conditions. Slok noted that market worries about US policymaking are actually lower than those about Japan and Germany.

Meanwhile, speculation is growing that the Federal Reserve may be forced to hike interest rates, potentially pushing yields back to levels seen before Treasury Secretary Scott Bessent expanded debt buybacks to lower long-term borrowing costs. Data shows the market-implied probability of a September rate hike has risen to 69%.

"5% has a psychological impact, and I think the stock market could have a knee-jerk reaction to it," Peters said. "Especially given the September seasonality, the midterm elections, and the fact that the catalyst from the second-quarter earnings season has already passed."

On earnings, Peters noted that US corporate profit growth of 30% and European growth of about 15% in the second quarter are unsustainable and that the pace will likely slow. However, she stressed that the breadth of this earnings expansion—with contributions from financials, industrials, and utilities—reflects a healthier market structure than one driven solely by technology.

Rising yields are beginning to have a tangible impact on the most rate-sensitive parts of the US economy, with both the housing market and the auto industry feeling the strain. Slok wrote in a report that the median US home price has reached $400,000, while most American households can only afford around $300,000. The rising bar for homeownership has pushed the median age of first-time buyers from 30 in 2008 to 40 today. Meanwhile, delinquency rates on multi-family housing have climbed to their highest level since 2004, even exceeding the post-global financial crisis peak.

"Interest rates are restrictive for the housing market, but not for AI," Slok said. This view aligns with JPMorgan's sector preferences. Peters lists utilities, financials, and technology as top picks. She noted that utilities are not only responsible for powering AI infrastructure, but more critically, electricity supply constraints—like memory chip shortages—could become a limiting factor for AI expansion.

JPMorgan's core thesis remains that a capital expenditure supercycle will drive an earnings supercycle, with the US and emerging markets still the bank's preferred equity markets, while Europe is seen as neither a winner nor a loser. In Peters' view, the real "mid-term test" lies in proving whether large-scale AI investment can deliver returns on capital—both for the tech giants pouring in money and for the end users across industries purchasing AI services.