Societe Generale's global asset allocation chief, Alain Bokobza, told Bloomberg Television that roughly 5.5% on the 10-year Treasury is the point where higher rates would outweigh earnings momentum and start to squeeze equity valuations. As he put it, "Equities are not more expensive now than they were at the beginning of the year," but at 5.5% on the 10-year, those earnings upgrades would no longer be enough to justify prices - the level where "equities start to be attacked."
Earnings expectations have been markedly lifted around the world this year, which Bokobza said has helped prevent a sharp deterioration in equity risk premia even as yields climbed. He also described the next moves from the Federal Reserve and the European Central Bank as "muted," adding he does not expect those increases to be forceful enough to end the current economic cycle or fully tamp down worries about inflation.
Bond markets have been steering stock sentiment lately. Yields have jumped as the worsening US-Iran standoff has revived oil prices and inflation fears. Tougher-sounding messages from the Fed and the ECB, concern over fiscal trajectories, and fiercer competition for capital thanks to the AI capex surge have all added upward pressure. There is a psychological layer too: Last week, JPMorgan's Grace Peters warned that a 5% print on the 10-year could trigger a knee-jerk equity selloff, while Barclays' Emmanuel Cau argued that hitting 5% would leave investors markedly more uneasy about the message it sends for stocks.
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Bokobza pointed to a "secular rise" in nominal GDP beginning in the early 2020s, powered by persistent fiscal outlays in places like Germany and Japan, sticky inflation, and heavy demand for funds to build AI infrastructure. With the 10-year at 4.78% and market pros flagging 5% as a psychological milepost, the conversation shifts to how close we get to that 5.5% stress line. If yields grind higher, watch how quickly profit outlooks evolve - that gap between earnings and borrowing costs is the fulcrum for what happens next to stock prices.
