Whether U.S. stocks can continue to rise, the answer may not lie in the bond market, but rather in the monthly data of Asia's semiconductor supply chain.
Recently, Bloomberg macro strategist Simon White pointed out that investors are currently overly focused on the question of "what level of Treasury yield will crush the stock market," which is essentially a pseudo-proposition. The real signals that need to be tracked are the chip export data from South Korea and Taiwan, China. Once there is a clear decline in these figures, it will serve as an early warning of a peak in the capital expenditure cycle, 3 to 6 months in advance, which in turn will trigger a shift in profit expectations and put U.S. stocks under sudden pressure in a high-yield environment. Currently, the aforementioned export data do not show any signs that the investment cycle is about to reverse.
The rising yield rates have so far failed to crush the stock market, and the core reason lies in the profit expectations climbing at an unprecedented speed.
The total expected earnings of the S&P 500 index over the next three years are projected to grow at a rate of 40% per year, far exceeding the compressive effect of the discount rate on the present value of cash flows. Meanwhile, according to calculations by Aswath Damodaran, a finance professor at New York University's Stern School of Business, the implied equity risk premium is currently at 3.67%. When combined with the yield on government bonds, the expected return rate of the S&P 500 has risen to nearly 9% in recent months, which explains the resilience of the stock market in an environment of high yields.
However, this situation highly depends on profit expectations remaining at the current level. Once expectations begin to shift, a yield of over 5% will instantly transform from an acceptable background noise to a core risk that can crush valuations.
The rise in yields has not yet posed a substantial threat to the stock market.
There is a common misconception in the market: that once the yield rate breaks through a certain threshold, the stock market will automatically collapse. Simon White believes that this framework ignores the fundamental reasons that drive yields upward.
The current rise in nominal yields in the United States is driven almost entirely by real interest rates, rather than inflation expectations (break-even interest rates). This distinction is crucial: an increase in real interest rates reflects the market's pricing of stronger real economic growth than expected; if inflation expectations were to be the driving factor, it would mean an increase in fiscal risk, which would have a direct impact on profit expectations. The former poses far less harm to the stock market than the latter.
From the perspective of relative valuation between stocks and government bonds, the current U.S. stock market is only moderately overvalued compared to government bonds, and there is no significant pressure for rebalancing. Yields have had a negative impact on the stock market valuation multiple (_Forward P /E)—investors are skeptical about the sustainability of high-speed profit growth, and rising discount rates have compressed the present value of future cash flows. However, strong revenue expectations and profit margin growth are compensating for this gap, allowing the S&P 500 index to remain strong overall.
Earnings expectations are currently the most critical supporting factor.
The core pillar supporting the stock market is the exceptionally strong earnings expectations. The combined growth rate of earnings forecasts for the S&P 500 over the next three years is expected to reach 40%, a level that has never been seen in historical data.
This growth rate is sufficiently high to offset the cash flow discounting losses caused by higher discount rates. It is this factor that drives the implied equity risk premium under the Damodaran framework to remain in a positive range of 3.67%, in sharp contrast to the negative value of ERP which is calculated using merely rolling historical earnings.
The problem is that these profit expectations are highly concentrated on the growth narrative driven by AI capital expenditures. Once the cycle of technology capital expenditures begins to cool down, a rapid revision downward of profit expectations will suddenly make the stock market vulnerable against a backdrop of yields of over 5%. At that time, high valuations will have no support from profit expectations and will also face pressure from high discount rates, resulting in a double risk.
Why Focus on Asian Chip Exports?
The mainstream view in the market tends to judge the capital expenditure cycle through analysts' forecasts of capital expenditures or individual announcements from large technology companies. Simon White believes that both methods have obvious flaws: analysts' forecasts are lagging, and the predictability of a single company's announcements is extremely low.
In contrast, the export data of South Korea and Taiwan, China possess inherent leading indicator properties. Any systematic contraction in capital expenditure will be reflected first in the export data of these two markets, with a lead time of about 3 to 6 months.
Data accessibility also has its advantages: export data is released on a monthly basis, promptly at the beginning of each month; in addition, South Korea provides estimated export data for the first 10 days of the month around the 21st of each month, offering investors a more frequent tracking window.
Simon White emphasizes that when chip exports begin to decline, the impact will be twofold: on one hand, it will directly suppress profit expectations, putting pressure on the stock market amidst high yields; on the other hand, as chip exports lead the nominal GDP trend, a subsequent reduction in market expectations for real growth will also drive down yields. The specific path of this development is still difficult to predict—capital expenditure shocks may simultaneously drag down both the stock market and yields, or they may first severely impact profit expectations before the suppressive effect of high yields becomes fully evident.











