Will a 10-year US Treasury yield rising to 5.5% "attack" US stocks? Societe Generale warns: this could be the valuation tipping point.

Against the backdrop of continuously rising US Treasury yields, the market is increasingly attentive to the critical threshold at which stock valuations come under pressure.

Alain Bokobza, Global Head of Asset Allocation at Société Générale, has offered a clear warning level—5.5%. He believes that once the 10-year US Treasury yield rises to this level, growth in corporate earnings will no longer be sufficient to offset the impact of rising borrowing costs on valuations, and the stock market will face substantial pressure.

In an interview on Monday, Bokobza stated that this year, global earnings forecasts have seen a significant upward revision, which has meant that even in an environment of rising yields, the equity risk premium has not experienced a clear collapse. “Stock valuations are no more expensive now than at the start of the year,” he said.

However, he warned that 5.5% will be the threshold where earnings upgrades can no longer support valuations—at which point “stocks will start to come under pressure.” Currently, the 10-year US Treasury yield stands at 4.8% (the cash market is closed for Labor Day).

The bond market has recently regained dominance over the emotions of equity investors. The escalation of the US-Iran conflict has pushed oil prices higher, reigniting inflation concerns. Added to this are hawkish signals from the Federal Reserve and the European Central Bank, worries about fiscal deficits, as well as the surge in capital competition caused by the AI capital expenditure boom—all contributing to higher yields.

Upward revisions in earnings support valuations, but room is limited

Bokobza pointed out that the significant global upward revision in corporate earnings expectations this year is the key support allowing stocks to maintain their valuations in a rising yield environment.

However, this buffer is not infinite. He defines 5.5% as the turning point at which the protective effect of earnings growth on valuations completely fails—beyond this level, the pressure from borrowing costs will systematically suppress the relative attractiveness of equities.

JPMorgan’s Grace Peters said last week that a 10-year US Treasury yield touching 5% would be psychologically significant and could trigger a stress reaction in equities.

Barclays’ Emmanuel Cau likewise stated that yields rising to 5% would cause investors to become substantially more cautious about the equity outlook.

“Structural upward trend” in nominal GDP creates lasting pressure

Bokobza attributes the underlying logic of the current yield uptrend to the “long-term structural rise” in nominal GDP.

He believes this trend is driven by a combination of factors: sustained fiscal expansion in major economies such as Germany and Japan, persistent high inflation, and surging capital demand fueled by AI infrastructure build-out.

He traces the starting point of this shift back to the early 2020s, regarding it as a fundamental paradigm shift with no signs of reversal in the short term.

From this perspective, rising yields are not simply a monetary policy variable but are embedded in a longer-term process of economic structural adjustment.

Central bank rate hike expectations remain moderate, economic cycle not over

Although the market remains concerned about persistent inflation, Bokobza believes that subsequent rate hikes by the Federal Reserve and the European Central Bank will be relatively limited in scale—not enough to interrupt the current economic cycle, nor to substantially suppress inflation expectations.

This means that under his base-case scenario, the stock market is not facing an imminent systemic collapse, but rather a progressive stress test of sustained pressure in an environment of high yields.

For investors, the range between 4.78% and 5.5% may become the most sensitive battleground for the stock-bond relationship in the period ahead.