JPMorgan strategists say the stock market can withstand gradual rate hikes.

JPMorgan said global equity markets can withstand rate hikes as long as the Federal Reserve raises rates gradually and in an environment of strong earnings growth and anchored inflation expectations. A strategist team led by Mislav Matejka wrote that the positive correlation between stocks and yields may persist, but the margin for error is narrowing; when the U.S. 10-year Treasury yield rises to about 5% to 5.5%, the risk of the relationship turning negative will increase. Strategists believe the stock market has already digested the rise in Treasury yields, because this round of yield increases was driven by improved economic activity and upward earnings revisions, with real rates moving higher, rather than by rising long-term inflation expectations.