Lofty valuations and record U.S. corporate debt make rising bond yields a risk to the stock market, according to Andrew Lapthorne, head of global quantitative research at Société Générale. Investors have shrugged off increasingly expensive U.S. stocks in recent years for a number of reasons, including solid earnings, low interest rates and nearly absent inflation. But as both yields and inflation rise, earnings might not be enough to propel stocks higher. A correction in February that sent the S&P 500 SPX, -1.34% down more than 10% combined with a near-20% expected increase in earning growth has lowered the trailing and forward price to earnings ratios. However, both measures remain above historical averages. According to FactSet, the 12-month forward PE of the S&P 500 is at 16.5, far above the 5-year or 10-year averages at 16 and 14.2, respectively. Lapthorne said high U.S. corporate debt is one of the reason why investors are concerned about rising borrowing costs. The yield on the 10-year Treasury note TMUBMUSD10Y, +0.66% , a benchmark for interest rates touched and briefly traded slightly above 3% for the first time in more than four years on Tuesday, and remains near 2.98%. That’s still historically low. But higher rates and rising debt servicing costs could present a challenge to U.S. companies, whose leverage is at record levels. According to FactSet, the total debt to total equity ratio is at 95.5, the highest level since 1999. In February, S&P Global Ratings warned that the number of defaults by heavily indebted companies could rise significantly amid tightening credit conditions. In a chart below, they show that U.S. companies (excluding technology firms) have continued to borrow in capital markets while Japanese companies de-levered. via