Why global equities can continue to rally as bond yields rise

THE year 2026 has seen US and global equities hold strong even as expectations of central bank rate cuts gave way to rate-hike worries and actual rate hikes in Europe and Japan, a war broke out between the US and Iran, the price of a barrel of oil rose to US$100 and above and, more recently, 10-year government bond yields in the US, euro area, the UK and Japan rose to levels last seen prior to the 2008 to 2009 global financial crisis.

The key driver to overcoming these obstacles has been rising earnings growth expectations across Western economies.

The US has seen a doubling in earnings growth expectations since the start of the year, from 12 per cent to 24 per cent. This means investors are paying less – 19.9 times earnings today – versus at the start of the year (22.1 times), despite the 14 per cent gain in the S&P 500 through to mid-August.