Inflation, deflation or reflation? Balance is essential as rate debate intensifies

Cost pressures and macro forces thrown into mix

Fuelled by abundant stimulus and optimism about the progress on vaccine distribution, markets have continued to push higher through 2021 – with the S&P 500 closing above 4,000 for the first time.

However, investors' focus has shifted away from infection rates to rising inflation, rising bond yields and steeper curves. Investors are concerned whether the market's gains are sustainable, particularly given the rally in 10-year US Treasury yields this year, which has prompted bouts of market volatility. Inflationary forces By placing a greater discount on future earnings, higher yields have helped accelerate the rotation away from higher-valuation tech stocks and toward value stocks. While some members of our investment team see the rising rates as an indicator of meaningfull...