On October 9th, strategists led by Marko Kolanovic, co-head of global research at JPMorgan Chase, predicted that the market and economy can withstand much higher Treasury yields and oil prices. Their model shows that after adjusting for factors such as inflation and consumer purchasing power, oil prices may rise to $130 or $150 without causing too much trouble.
At the same time, the market’s concerns about rising yields have been overdone. Given the profitability of US companies and the valuation premium of stocks relative to bonds, even if the US 10-year Treasury yield reaches 2.5%-100 basis points higher than current levels. U.S. stocks can also afford it.
