Higher yields unlikely to derail equities as earnings grow: Federated Hermes

• Rising long-term yields reflect an exit from a 'lower for longer' environment (sub-2% growth/inflation) to a 3% growth/2.5% inflation environment.
• Equity markets are resilient due to strong earnings growth (margins >9%, 'unprecedented') and have become cheaper (P/E from 23x to 19x).
• Consumer and corporate strength is concentrated at the high end and large companies, largely unaffected by rising rates, while AI infrastructure build provides significant tailwinds.

Steve Chiavarone of Federated Hermes argues that rising bond yields are not a negative for equities, as strong earnings growth and expanding margins are robust enough to withstand them. He believes the market is transitioning from a 'lower for longer' environment to one of higher growth and inflation, with valuations becoming more attractive.