JPMorgan: Stabilizing Treasury Yields May End Valuation Compression, Stocks Poised to Extend Year-End Rally
nashnova research
JPMorgan strategist Mislav Matejka says if the 10-year Treasury yield stabilizes after peaking near 5.3%, equity valuation compression could end — and with Q3 earnings beating expectations, stocks still have room to run into year-end.
Why did yields spike so high?
The 10-year Treasury yield broke above 5% in late September — the first time in twenty years — peaking at roughly 5.3%.
JPMorgan argues the move overshot. Shifts in fed-funds futures account for nearly all of this year's rise in the 10-year yield.
This means → once short-end repricing is largely done, much of the upward pressure on long-end rates should fade. The call for yields to stabilize rests on pricing mechanics, not wishful thinking.
How much damage did rising yields inflict on stocks?
At the worst of the sell-off, forward P/E ratios for both the S&P 500 and the MSCI World Index compressed by roughly 3 points.
The S&P 500 forward P/E fell from 21.7× at the start of the year to 19.1× today.
In plain terms = corporate earnings did not deteriorate — but with rates this high, investors are willing to pay less for the same earnings. That is valuation compression. If yields stop climbing, the squeeze can stop too.
How are Q3 earnings shaping up?
Among companies that have reported, 78% of US firms and 60% of European firms beat consensus EPS expectations.
The share of companies globally showing accelerating earnings growth is near a historical high.
This means → fundamentals are providing real support. A rally backed by earnings momentum is more durable than one driven by multiple expansion alone.
What else would falling yields unlock?
JPMorgan notes that lower yields would ease pressure on two fronts: AI capex financing costs and consumer balance sheets.
In plain terms = building AI data centers gets cheaper to fund, and households face lighter mortgage and credit-card burdens — so capital no longer crowds exclusively into mega-cap tech and can spread to mid-caps and other sectors.
This reflects JPMorgan's core thesis: yield stabilization does not just lift the index — it could broaden market participation.
What has to go right for the year-end rally to hold?
JPMorgan names two conditions that must both be met: long-end yields genuinely stabilize once short-end repricing is done, and the Q3 earnings-beat trend continues.
If either fails, the year-end rally thesis breaks down.
In plain terms = this is not a "stocks will definitely rise" forecast. It is an "if A and B, then C" conditional — investors should watch whether both conditions are actually met.
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