Equity Earnings Yields vs the Risk-Free Rate.

We see no compelling case for adding broad equity risk at these levels, and the emerging oil-driven CPI risk only reinforces that view. The bear case for equities here does not require a recession. It simply requires that the current configuration holds: a risk-free rate that already sits inside the band of equity earnings yields, with no credible catalyst to reverse that. 

Every series on this chart has been converging toward the risk-free rate since 2022, and nothing in the macro environment, not earnings momentum, not rate trajectory, not credit conditions, credibly reverses that without either a meaningful equity correction or a sustained cutting cycle we do not yet have. An inflation re-acceleration driven by an oil supply shock makes that cutting cycle even less likely, extending the period during which equities must compete against a 4.31% risk-free rate with almost no valuation buffer. 

The asymmetry is unfavourable: equities need a perfect outcome to stay here, and only a moderately disappointing one to reprice sharply lower. Our preference sits firmly in value (WORLDVN), the only factor where investors are still paid to take risk, but we are watching that 34bps spread closely. If it closes to zero, the valuation argument for equities over bonds disappears and duration becomes the more rational risk asset. We would trim growth (WORLDGN) on any rally. 

The 2018 and 2022 episodes were not accidents. They were the market correcting exactly this configuration, and we see no reason why 2026 should be different. On duration specifically: an oil-driven inflation spike complicates the fixed income entry point in the short term, but if it triggers an equity correction without a genuine growth impulse behind it, bonds become the destination, not the casualty. We expect the relative attractiveness of bonds over equities to be a defining allocation theme through the remainder of 2026.