Capital Market Outlook

The report argues that current high Treasury yields are sustainable because they reflect robust economic growth and AI-driven productivity rather than an impending recession. It maintains an overweight position on Equities while warning that shifting stock-bond correlations require more sophisticated diversification strategies.

Key Takeaways

• 1.Current higher Treasury yields are being driven by stronger growth and productivity rather than recessionary fears, making them 'tolerable' for risk assets.
• 2.The traditional inverse relationship between stocks and bonds has weakened as inflation uncertainty becomes a dominant force, necessitating a more dynamic approach to diversification.
• 3.Equities remain overweight, supported by double-digit earnings growth and AI-related capital investment despite geopolitical and energy shocks.

Table of Contents

• Macro Strategy—Higher Yields Tolerable, Not Recessionary
• Market View—Stock-Bond Correlations Are Shifting: What It Means for Diversification
• Thought of the Week—Four Stats for Five Months
• Markets in Review
• Portfolio Considerations
• Index Definitions
• Important Disclosures