The bond market is entering a phase of active reallocation, where carry becomes attractive again but where credit selectivity becomes central.
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The market is shifting from an inflation shock to a slowdown shock, and this pivot must now guide allocation. The Strait of Hormuz remains the central point of tension: up to 15-20% of global energy flows are disrupted, keeping Brent around $115, up almost 70% since the start of the year. Adjustments via alternative pipelines and strategic reserves have temporarily contained the shock, but this margin is narrowing. Energy now acts as a direct tax on global growth, particularly for Europe and importing Asia. Financial conditions are tightening rapidly, with long-term rates rising by around 50 basis points in advanced economies, while central banks enter a phase of constrained prudence. The environment becomes less inflationary than restrictive for growth. The implication is clear: reduce exposure to cyclical segments, energy-sensitive currencies, and favor assets capable of absorbing a prolonged slowdown.
American stocks maintain a relative advantage, driven by the resilience of profits more than by multiples. Results expectations for 2026 have been revised upwards, with operating margins around 14%, significantly above historical averages. The market is trading at demanding levels, but the normalization of the technology premium makes these valuations more sustainable. Since the start of the shock, US stocks have significantly outperformed Europe and emerging markets, supported by a stronger dollar and intact pricing power. Large American companies have demonstrated their ability to absorb recent shocks while maintaining solid profit growth. The allocation must remain oriented towards quality stocks, notably profitable technology, health and utilities, with particular attention to results as a catalyst for rerating.
The bond market is entering a phase of active reallocation, where carry becomes attractive again but where credit selectivity becomes central. Rate volatility remains high, reflecting an uncertain environment. Tensions are particularly visible outside the United States, where long-term rates are reaching levels not seen in several decades, reflecting a deeper repricing of budgetary trajectories. Defense spending, energy subsidies and investment needs simultaneously weigh on public balances. In this context, discipline is essential: reduction of the riskiest segments of credit and peripheral debt, maintenance of a bias towards investment grade credit, and moderate lengthening of the duration to capture the coming slowdown. Carrying once again becomes a source of return, but it no longer compensates for poor positioning.
The answer is neither withdrawal nor binary betting, but a disciplined allocation based on quality, liquidity and convexity. The probabilities of rapid normalization remain low and the markets are evolving in a regime of increased dispersion between asset classes and between regions. Defensive assets do not always play their role in the short term, particularly under the effect of the dollar which captures safe haven flows, but the fundamentals remain in place. In this context, the allocation must remain structured around an equity bias towards the United States and quality stocks, a bond base reinforced via duration and investment grade credit, a level of liquidity slightly higher than normal to manage the volatility, and exposure to gold as a structural diversifier. In an environment dominated by supply shocks and political uncertainty, portfolio convexity becomes a central element of risk management.
