- JPMorgan strategists led by Mislav Matejka argue the recent bond-yield surge is a late-stage repricing of rate risk, not the end of the growth cycle, expecting yields to retreat from current highs.
- The bank sees resilient economic growth and strong corporate earnings supporting equities, pointing to four consecutive months of rising Eurozone PMIs and Germany's Ifo survey at a three-year high.
- France remains the key caveat: higher borrowing costs, fiscal strain, and political uncertainty pose a distinct Eurozone risk, though JPMorgan believes much of that concern is already reflected in French equities.
A Stretched Move, Not a Broken Cycle
JPMorgan Chase & Co. strategists led by Mislav Matejka are pushing back against the prevailing narrative that rising bond yields will inevitably snuff out the equity rally. In a note to clients, the team argued that the recent backup in yields—roughly 100 basis points year-to-date—looks stretched, with bonds nearing oversold territory and rate futures already pricing more than three additional hikes. Equities, meanwhile, delivered double-digit gains for most of that period, a divergence Matejka reads as a late-stage repricing of interest-rate risk rather than proof that the growth cycle has cracked.
The core of the argument rests on inflation expectations. As long as those remain anchored and wage growth stays soft, yields do not need to climb indefinitely. "What matters is why yields rise," the strategists noted, drawing a distinction between a growth-led rise in real rates—which equities can absorb, especially cyclicals, banks, and industrials—and a move driven by unanchored inflation expectations or fiscal credibility concerns, which compresses valuations across the board.
Macro Data Backs the Bull Case
JPMorgan points to improving activity indicators as evidence the expansion is intact. Eurozone purchasing-manager indexes have risen for four consecutive months, and Germany's Ifo business-climate survey reached a three-year high. The bank expects positive earnings revisions across most regions as the third-quarter reporting season gets underway, a view that underpins its call for an equity rebound into year-end.
Market internals support that read. European cyclicals have outperformed defensives, a configuration JPMorgan interprets as investors positioning for continued expansion rather than bracing for a deep downturn. The firm remains overweight emerging markets relative to developed markets and continues to flag the United Kingdom's valuation discount and high dividend yield as attractive. Within technology, it prefers semiconductors and hyperscalers but is more cautious on AI-exposed software and services names.
France: Priced In, But Not Risk-Free
The most consequential caveat in JPMorgan's thesis is France. The bank believes much of the country's political risk is already reflected in the CAC 40, a valuation claim rather than a guarantee. French 10-year yields have climbed to around 4.95%, the highest since 2002 and roughly 1.4 percentage points higher over three months. An early-October auction of €12 billion in long-dated bonds drew demand of more than twice the amount offered, demonstrating continued market access—but at a sharply higher cost. The 10-year auction yield came in at 4.93%, versus a 4.32% average in September and 3.86% at an August issuance.
Those higher borrowing costs feed directly into France's fiscal arithmetic. With a high debt burden, persistent deficits, and a fragmented parliament, the government's ability to deliver durable consolidation remains an open question. Economists cited in French press questioned whether the 2027 budget presented by the government is sufficiently credible, underscoring the political difficulty of pairing spending restraint with public acceptance.
JPMorgan's contention that French risk is priced into equities does not mean a further sell-off is impossible. If fiscal plans fail, yields continue climbing, or political uncertainty worsens, French equities could come under renewed pressure. The broader global bond move—lifted by heavy AI-sector capital needs, energy and geopolitical shocks, and a reassessment of long-term rate levels—creates competition for capital between governments and private borrowers, a dynamic that could prove more restrictive than the bank's base case assumes.
The Bigger Picture
Separating JPMorgan's market view from the bank's own fundamentals is important. Matejka's comments are investment-strategy research, not a forecast of JPMorgan Chase's corporate earnings. The bank itself reported second-quarter net income of $21.2 billion, or $7.70 per diluted share, on managed revenue of $58.0 billion—up 27% year over year. Excluding significant items, including a $3.44 billion after-tax Visa (V)-share-related gain, net income was $16.9 billion and EPS $6.14. The Commercial & Investment Bank posted net income of $9.7 billion, up 46%, with Markets revenue rising 35%.
Investors watching the yield debate should focus on whether inflation expectations and wage measures stay contained, whether rate futures stop repricing higher, and whether third-quarter results validate the earnings-growth story. The optimistic case is a controlled normalization of yields alongside durable growth. The adverse case is a feedback loop in which higher sovereign yields worsen fiscal arithmetic and spill over into private financing costs—with France as the clearest European focal point.
Correction: An earlier version of this article misstated the year of JPMorgan's reported quarterly results. The figures cited are from the most recent quarter disclosed.