Global bond yields continued to rise last week, along with interest rate expectations, as it is becoming increasingly evident that inflation has broken substantially above central bank’s targets, and the global economy is holding up in the face of the latest COVID-19 wave. The shifting monetary landscape is triggering a correction in equity markets, which has reinforced our rotation theme that is favoring some prior laggards and hitting various prior leaders, especially many speculative high-flyers.
Two reports last week outlined why we remain bullish on financials. The first reviewed the performance of our absolute return portfolio, which caught most of the major market moves last year and, once again, outperformed the global multi-asset benchmark. The report reiterated our case for a rotation in equity leadership, which typically develops during correction phases. The shifts include within the U.S. market at the sector level, and at the regional level.
The second report examined the key investment issues in view of the changing policy backdrop, and also provided an in-depth update on the outlook for global financials. We continue to overweight financials within a global equity portfolio, favoring the U.S., euro area and EM.