Investing.com -- Barclays analysts said strong earnings performance has enabled European equities to withstand rising bond yields, with first-quarter results driving earnings per share growth to multi-year highs across US and European markets.

The bank said equity gains year-to-date have been primarily driven by robust earnings, with Q1 results pushing EPS growth to levels not seen in several years. This triggered fiscal year 2026 upgrades that exceeded typical annual trends, though the strength was concentrated in sectors including Energy and Semiconductors.

Barclays noted that the earnings cushion has allowed equities to absorb higher yields, which have increased following resilient US economic data. The bank said this reflects a reflationary backdrop rather than solely inflation pressure.

With the US 10-year Treasury yield breaking above 4.5%, Barclays said rates are approaching levels that could pressure equities. Markets are pricing in a more hawkish Federal Reserve and European Central Bank amid rising inflation risk, while concerns about developed market fiscal loosening are pushing up term premia.

However, Barclays pointed out that real rates remain stable, and while bond yields appear elevated in the post-financial crisis context, they have reached these levels previously. The bank noted that during most of the 1990s, low risk premia did not prevent decent stock returns.

Barclays said commodity trading advisors' duration shorts look extended, suggesting any oil price decline on easing Iran tensions could pull yields lower and revive equity market broadening.

The bank said Value stocks should continue performing well as long as growth holds and the reflationary setup persists, led by sectors like Energy, Financials and Materials.