The Race Is On: Higher Bond Yields Versus Something “Snapping” – October 9, 2023

A just-published report updated our multi-asset recommendations, and reiterated that the investment environment will remain challenging on a 6-12 month horizon. For now, we remain underweight bonds and overweight cash, as the relentless march higher in bond yields is not over given the still upbeat economic outlook and sticky inflation. Conversely, de-rating pressures on equity markets are intensifying and threaten to overwhelm the benefit of better global corporate earnings. Consequently, we are neutral on stocks with a downgrade bias.

Last week we updated our monthly chartpack that we use to monitor the deteriorating trend in the weak-link economies. The rise in global bond yields will ultimately prove lethal for these economies, as soaring debt servicing burdens will undermine consumption and, eventually, trigger rising unemployment.

Adding it up, the fallout from various weak-link economies and asset classes will continue to intensify, but it will take time for it to trigger a significant global financial market “response” or a global recession. Until then, investors should tread carefully and maintain above-average cash reserves.


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