Equity markets and credit spreads have rallied strongly alongside the rates curve due to expectations of lower interest rates. Markets will remain focused on inflation, on watch for several months to gauge support for the Fed’s optimism.
However, sustainable appreciation requires fundamental improvement as well, with margins – the flip-side of the lower inflation coin in some sectors – a key metric to watch.
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Should profits inflect higher, while markets look well priced overall, differentiation still appears significant. This offers potential for some of the rally’s laggards to make up the ground on those equities that have performed well.
Michael Kelly is global head of multi-asset at Pinebridge Investments
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