What do rising bond yields mean for the US stock market?

The fear of inflation is leading investors to speculate that the Federal Reserve may withdraw its stimulus measures sooner rather than later. This prospect has spooked markets as it would imply higher bond yields and therefore lower equity market valuations. However, this does not mean returns have to suffer. In the past, equities have been able to absorb the impact of rising yields, as improving earnings more than offset valuation contractions. Looking ahead, we believe US equities can still generate positive returns for investors, as long as yield increases are gradual and roughly proportionate to earnings growth.