Why Stocks Could Defy Higher Rates & Keep Rallying: ETFs to Watch

The article argues that the U.S. equity rally can continue despite elevated Treasury yields, citing 52% year-over-year S&P 500 earnings growth in Q2 and expected Q3 growth of 23.9%, with 14 of 16 Zacks sectors projected to post earnings gains. Rising real rates, up 50bps since late February, are framed as evidence of stronger growth rather than inflation stress, while reported PCE readings of 3.4% headline and 3.0% core were below estimates. Seasonal trends, projected 4.5% holiday-sales growth, historical post-midterm gains, and projected global AI data-center capex above $3 trillion by 2030 support a constructive view on broad-market ETFs such as VOO and RSP and technology-heavy QQQ.

Analysis

The article's thesis is directionally supportive for risk assets but offers little incremental information; its macro inputs appear internally stale, including election framing and earnings figures that are not a reliable basis for forward positioning. The actionable issue is not whether equities can rise with real yields, but whether earnings breadth is sufficient to offset the valuation duration risk embedded in mega-cap technology. A further real-yield increase without commensurate upward revisions would pressure QQQ disproportionately, while economically sensitive equal-weight exposures should hold up better.

For IVZ and SCHW, a sustained risk-on tape is a modest operating tailwind through higher AUM, net flows and client engagement, but the sensitivity differs. IVZ needs persistent rotation into active/equity products and improved net flows to translate market beta into a rerating; SCHW benefits more directly from client cash sorting stabilizing and a less punitive rate path, not merely a higher S&P 500. Higher long rates driven by term premium or fiscal supply would be negative for both through valuation and, for SCHW, balance-sheet/asset-duration concerns.

The underappreciated second-order AI beneficiary is infrastructure rather than broad QQQ: power management, electrical equipment and data-center cooling can retain earnings visibility even if semiconductor and hyperscaler multiples de-rate. Over the next 6-18 months, Eaton (ETN), Vertiv (VRT) and Quanta Services (PWR) have more direct backlog conversion exposure; however, consensus has already crowded these names, making earnings execution and capex guidance the key catalysts rather than generic AI enthusiasm.

Contrarian view: a seasonal/election-based rally is weak evidence when positioning is already bullish. The more likely near-term trade is broadening, not another concentrated growth-multiple expansion. Falsify the constructive breadth thesis if forward S&P 500 ex-Magnificent Seven estimates roll over, the 10-year real yield rises another 25-35 bp without revisions improving, or high-yield spreads widen materially; those conditions favor defensive quality and argue against adding beta.

Key Decisions for Investors

• Prefer a 1-3 month long RSP / short QQQ pair rather than outright index beta: it captures earnings-breadth rotation while limiting exposure to further long-duration multiple compression. Exit if QQQ earnings revisions reaccelerate relative to equal-weight cyclicals or real yields decline by more than 25 bp.
• Maintain IVZ as a watch item, not a new long: require two consecutive months of improved long-term net flows and positive operating-margin guidance before underwriting a rerating. Market appreciation alone is insufficient given the firm's historical flow sensitivity.
• Use SCHW selectively only if cash-sorting and funding-cost disclosures continue to improve; a 3-6 month long can work alongside a hedge in KRE if deposit competition eases. Stop the thesis on renewed deposit outflows, a worsening net-interest-revenue outlook, or a sharp curve steepening driven by term premium.
• For 6-18 month AI exposure, favor scaled entries in ETN or PWR over incremental QQQ exposure, with VRT higher beta but more valuation risk. Size modestly ahead of capex updates; reduce if hyperscaler capex guidance decelerates or data-center order/backlog conversion misses.
• Do not position on the seasonal or electoral statistics. Set a risk trigger at a 25-35 bp rise in 10-year real yields with no parallel improvement in forward earnings revisions; under that outcome, cut cyclical/equity-beta exposure and increase duration-neutral quality hedges.