Grace Peters from JPMorgan Chase & Co. has identified climbing bond yields as the primary threat to global equity markets as they move through what is historically the weakest month for stocks, September.

While Peters anticipates additional gains for both US and European equities throughout the year, she warned that a pullback of 5% to 8% is a distinct possibility leading into significant events such as the November US midterm elections. She characterized such a decline as a healthy market correction rather than the beginning of a sustained bearish trend.

The escalation in bond yields has become a central worry for stock investors. Mounting concerns that surging oil prices will drive inflation have pushed 10-year Treasury yields to 4.8%, edging closer to the 5% threshold which is frequently perceived as bearish for equities. Simultaneously, the 30-year yield has reached its highest point in 19 years. This has fueled speculation that policymakers might be compelled to increase interest rates, potentially driving yields back to levels observed before Treasury Secretary Scott Bessent expanded buybacks to manage long-term borrowing expenses.

"The 5% level carries a psychological weight, and I believe you might witness an immediate, instinctive reaction from the stock market in response. This is especially true considering the factors we've highlighted: the September seasonality, the upcoming midterms, and the fact that the primary catalyst from the second-quarter earnings season has now passed," Peters, who serves as the global head of investment strategy at JPMorgan Chase Private Bank, stated in a Bloomberg Television interview.

Regarding corporate earnings, Peters noted that the 30% growth seen in US second-quarter results and the roughly 15% increase in Europe are not sustainable and are likely to moderate. However, she argued that the current market expansion features broad participation—with financials, industrials, and utilities all adding to gains—which indicates a healthier market environment compared to one propelled exclusively by technology stocks.

Peters reiterated that JPMorgan's central investment thesis revolves around a capital expenditure supercycle fueling a corresponding earnings supercycle. The firm maintains its preference for US equities, alongside emerging markets, while viewing Europe as a market that is neither a standout winner nor a significant loser.

She singled out utilities as a preferred sector, alongside financials and technology. Peters pointed to their critical function in powering AI infrastructure and also highlighted the potential risk that power limitations, coupled with shortages in memory chips, could serve as a restrictive factor on the future expansion of artificial intelligence.

The true "medium-term test" for the market, according to Peters, will be proving that the massive investments in AI are yielding a satisfactory return on invested capital—both for the corporations making the expenditures and for those buying AI-enabled services throughout various sectors of the economy.