Report published September 27, 2026

Morgan Stanley: Rates, Equities and Racing the Denominator – Global Macro Analysis

Morgan Stanley · September 27, 2026

Global equities have gained 13% year-to-date despite a 100bp increase in 10-year US Treasury yields, as robust earnings growth has kept the equity risk premium stable. However, with Treasury yields at elevated levels, the margin for error has narrowed, increasing the risk of negative earnings revisions.

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Finvaulta summarizes Morgan Stanley's analysis. Attribute opinions, forecasts, time-sensitive values, and chronology to the issuer and report date; do not treat this page as an independent verification or a current market-data source.

Key Takeaways

1.Despite a 100bp rise in US 10-year Treasury yields, global equities are up ~13% because strong earnings growth (g) has offset higher discount rates (r).
2.The Equity Risk Premium (ERP) has remained broadly unchanged this year, demonstrating that earnings growth rather than multiple expansion is driving equities in a classic mid-cycle market.
3.Stock vs. bond valuation gaps are weak predictors of 12-month relative returns (explaining only ~10%), but explain about half of performance over a three-year horizon.

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Report data

Exhibit 2: Stock vs. Bond valuations are poor predictors of relative performance over the next 12 months. They are a much stronger signal on longer horizons.

Metric	Estimate	Context
Global equities performance	13%	Global equity rally alongside rising bond yields
US 10-year Treasury yield change	100 bp	Yield increase over the course of the year
Europe 2026 EPS growth	20%	Europe experiencing its strongest earnings season in years
US IG corporate bond issuance	1.6 USD Trillion	High volume of investment grade corporate debt issuance
Hyperscaler bond issuance	220 USD Billion	Bonds issued by tech hyperscalers to finance capex and M&A