MacroResearchBoard

Better Global Growth, But Is It Already Discounted? – April 8, 2024

A recently published report updated our global multi-asset investment recommendations and highlighted the mounting near-run risks as investors have become exuberant in the face of improving global growth, still easy financial conditions and the “promise” of approaching DM policy rate cuts. The global stock/bond ratio has soared recently, and conditions are getting overbought. A consolidation phase in the ratio, if not an outright correction, seems probable.

Looking out beyond any near-term volatility, we expect a higher stock/bond ratio before the cycle finally ends. Investors have already front-run a sizable improvement in corporate earnings, which we also have embraced. However, we are in the minority in expecting a further meaningful unwinding in DM policy rate cut expectations for 2024-2025. Moreover, we anticipate a test, and most likely a breach, of last year’s Treasury yield highs over the next 6-12 months.

While we do not envision profit disappointments ahead, the greater risk for equity and credit markets will be from another leg up in bond yields.