Even with the U.S. 10-year Treasury yield above 5%, U.S. stocks have held near their highs. The factors cited include corporate earnings growth, financial strength and the spillover effects of AI investment.
Despite long-term interest rates in the United States exceeding 5%, the stock market has continued to rise, with the Nasdaq Composite and S&P 500 reaching record highs. Rising interest rates theoretically weigh on equity valuations, but the factors cited as supporting the market include expanding corporate earnings, improving credit conditions, greater capital efficiency and markets pricing in future growth. Investors are said to be advised to focus less on interest rates themselves than on earnings growth and cash flow trends.
While rising interest rates weigh on share prices, corporate earnings growth is currently more than offsetting that negative effect in the stock market. S&P 500 constituents are expected to post earnings growth of approximately 30% year on year in the third quarter of 2026, with strong full-year earnings growth also expected. The tug-of-war between earnings growth and interest-rate trends is determining whether the market's theme will be acceptance of higher rates.
Compared with 2007 levels, a rise in long-term interest rates above 5% does not necessarily mean that the stock-market rally will collapse immediately, but attention is required because credit concerns could spread at the same time as they did before the financial crisis. At that time, deterioration in the housing market and credit concerns came first, eventually making the combination of high interest rates and economic weakness a turning point for the stock market. New factors, including expanded AI investment, are present today, and the focus is on what will support sustainable growth.
While the spillover effects of AI investment are boosting corporate earnings, it is important to determine whether ROIC can consistently exceed the cost of capital and whether investment is translating into effective earnings growth. Capital investment in data centers, semiconductors, cloud computing and power infrastructure is driving sales growth, but depreciation and financing costs are also rising, making it necessary to assess investment profitability through ROIC.