Seema Shah, Chief Global Strategist at Principal Asset Management, stated that equity markets, particularly in the US, have been able to digest the increase in bond yields without significant discomfort. She explained that this resilience is partly due to rising bond yields being driven by stronger growth expectations, which helps equities maintain momentum. This sentiment is further supported by a strong earnings season.
Shah emphasized that while rising global bond yields should typically impact other asset classes, the effect on US equities has been less pronounced. She highlighted that robust earnings and the ongoing AI rally are key factors driving the equity market's strength. Even in downside scenarios, such as oil prices potentially reaching $150 a barrel, she finds it difficult to foresee a recession in the US.
From Principal's perspective, Shah does not anticipate markets repricing Federal Reserve interest rate cuts unless there is a significant weakening in the labor market. Therefore, she expects any bond rally in the US to be quite contained. The focus remains on how the bond yield market progresses, but strong corporate profits are acting as a bulwark against the rise in the risk premium associated with higher bond yields.
