Investing.com — Strong corporate earnings have been the key buffer allowing equity markets to absorb rising bond yields, Barclays said in a note on Wednesday, though the bank warned that yields are approaching levels that could test that resilience.
Analyst Emmanuel Cau said equity gains year-to-date have been “driven primarily by strong earnings,” with blended first-quarter earnings per share growth tracking 25% in the U.S. and 7% in Europe, the highest since 2021 and 2022, respectively.
Full-year 2026 estimate upgrades have come in well above typical annual trends, though concentrated in and semiconductors.
Barclays noted that the earnings cushion has so far allowed equities to absorb higher yields, which have risen on the back of resilient U.S. economic data rather than purely inflation pressure.
“As long as reflation backdrop and earnings resilience hold, TINA should continue to favour equities vs. bonds,” the bank said.
However, Barclays flagged that with the breaking above 4.5%, rates are “approaching the pain threshold for equities.”
The bank believes markets are pricing a more hawkish Federal Reserve and European Central Bank, while fiscal loosening concerns are pushing up term premia. If continue rising, tighter financial conditions could create more trouble for risk assets.
On strategy, Barclays maintained a preference for Value but cautioned that a stagflationary scenario could shift the advantage toward defensives and stronger balance sheets.
The bank added that any oil price drop tied to credible Iran peace developments could pull yields lower and broaden the equity market rally.
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