Beware of the "September curse"! JPMorgan Chase warns that if US Treasury yields break 5%, US stocks may experience a healthy correction of 5%-8%.

Beware of the "September curse"! JPMorgan Chase warns that if US Treasury yields break 5%, US stocks may experience a healthy correction of 5%-8%.

With US Treasury yields approaching the critical 5% mark, short-term risks for global stock markets are rapidly escalating.

Grace Peters, global head of investment strategy at JPMorgan Private Bank, warned that if the 10-year Treasury yield approaches 5%, it could trigger a "knee-jerk reaction" in the stock market, with US stocks potentially facing a 5% to 8% correction. Currently, the 10-year Treasury yield has risen to 4.8%, while the 30-year Treasury yield has hit a 19-year high.

However, Peters did not become pessimistic. She believes that even if there is a 5% to 8% correction, it is more likely to be a healthy pullback rather than a structural market collapse ; from a full-year perspective, she remains optimistic about the performance of US and European stocks.

September's seasonal weakness, coupled with the upcoming election, has increased market sensitivity.

According to Bloomberg, Peters stated in an interview that a 5% yield level has significant psychological implications. Once the 10-year US Treasury yield rises to the 5% to 5.25% range, the stock market could experience a noticeable immediate reaction.

The recent rapid rise in US Treasury yields is primarily driven by escalating inflation concerns. Rising oil prices have heightened market anxieties about a resurgence of inflation and increased policymakers' expectations of renewed interest rate hikes, leading to a return of long-term US Treasury yields to previous levels.

Peters believes the current market is in a particularly sensitive time window. September has historically been a weak month for the S&P 500, the earnings catalyst from the second-quarter earnings season is waning, and the approaching US midterm elections could further amplify market uncertainty.

Profit growth may slow, but the market foundation is more stable.

Compared to yield pressures, corporate earnings remain a key factor supporting Peters' optimistic outlook for the full year.

She pointed out that US corporate earnings growth reached approximately 30% in the second quarter, while European growth was around 15%. This growth rate is unlikely to be sustained in the long term and will likely slow down gradually in the future. However, it is worth noting that this round of earnings growth is not entirely dependent on technology stocks; sectors such as finance, industrials, and utilities are also contributing to earnings, meaning that the foundation for market gains is broader than in the past.

JPMorgan Chase's core assessment remains unchanged: a "supercycle" in capital expenditures is expected to drive earnings into a "supercycle." In terms of regional allocation, the bank continues to prioritize US equities while also favoring emerging markets; a neutral stance is maintained on Europe.

The AI boom is entering a period of validation and reward.

Utilities is one of the sectors Peters is particularly optimistic about, alongside finance and technology.

In her view, the expansion of AI infrastructure is pushing electricity demand to new heights, from which utilities are expected to directly benefit. However, at the same time, bottlenecks in power supply and shortages of memory chips may also become hard constraints on the expansion of AI.

The bigger question is whether the massive capital expenditures on AI can ultimately translate into sufficiently high returns on investment. Peters believes this will be the real "mid-term test" for AI investment—not only whether tech companies can profit from their investments, but also whether companies across industries that purchase AI services can obtain adequate economic returns.

Therefore, in JPMorgan Chase's view, what the market needs to be more wary of right now is not the disproving of the AI story itself, but the possibility of a phase of valuation reassessment after the combination of high valuations, high returns and slowing profit growth.

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