5% interest rates: When earnings outrun the discount rate

State Street Investment Management’s Chris Carpentier examines why US equities have remained resilient even as 10-year Treasury yields approach 5%.

• Higher real yields have compressed the S&P 500 forward P/E from roughly 23x to about 19x, confirming that valuations are still sensitive to discount rates.
• Stronger earnings expectations have so far offset that valuation drag, supported by improving profitability and revenue trends.
• The key risk is that earnings momentum weakens through softer growth, higher inflation, rising real yields or a slowdown in AI-related investment.

Explore the full report to understand why the interaction between rates and earnings matters more than the absolute level of yields.