Emmanuel Cau, head of European equity strategy at Barclays Plc, echoes that view, saying cheaper, so-called value stocks offer “the best hedge against rising yields, as long as the macro backdrop remains supportive.” A recent rebound in expensive technology stocks may run out of steam “given their lofty valuations,” Cau said.
Companies across sectors with high debt levels may also struggle if “rates really do start to rise and the economy really does start to slow,” said Russ Mould, investment director at AJ Bell.
To be sure, not everyone is so sanguine about yields having a contained impact on equity markets.
Morgan Stanley strategists led by Michael Wilson said Monday that headwinds to growth from the Fed’s policy shift, high inflation and the war in Ukraine “are not priced.” The equity risk premium should be higher, they said, downgrading U.S. financials to neutral from overweight.
--With assistance from Michael Msika, Farah Elbahrawy, Greg Ritchie, Finbarr Flynn, Kat Van Hoof and Sagarika Jaisinghani.
This article was provided by Bloomberg News.