At the start of the year, our analysis identified two extreme scenarios to watch: a significant correction and, at the other end of the spectrum, a melt-up, i.e. an acceleration of the market rally in continuation of previous years.<\/p>\n
Both have, to some extent, played out. The decline seen in March ultimately proved shorter and shallower than expected. The melt-up, for its part, partly materialised, driven in particular by technology and the considerable hopes placed in artificial intelligence.<\/p>\n
But the year is not over yet. And it may still have a few surprises in store.<\/p>\n
US 10-year yield above 5%<\/strong><\/p>\n The yield on the 10-year US Treasury has broken through the 5% mark, reaching a level not seen since 2007. The threshold is symbolic, but no less telling for that. Could this be the catalyst for the next correction?<\/p>\n Anyone looking for reasons to worry will find plenty in the news. The geopolitical backdrop remains tense, notably with a conflict around Iran that shows no sign of ending soon. Equity and credit valuations leave little room for disappointment. The Fed, faced with persistent inflation, may be forced to take back more control after falling behind the curve. On top of this come questions over how US debt will be financed and the Treasury’s so far unconvincing attempts to contain pressure on long-term yields, with the return of financial repression also in the background. And yet the economy is holding up, at least for now.<\/p>\n Animal spirits still alive and well<\/strong><\/p>\n Keynes’s famous animal spirits remain particularly strong, especially in the United States.<\/p>\n Households keep spending, companies keep investing and investors keep buying risk assets, driven by the conviction that artificial intelligence will profoundly transform the economy.<\/p>\n Markets thus seem buoyed by the promises of AI and the productivity gains it is expected to bring. They may well be right. But markets are forward-looking by nature: the real question is whether prices already reflect a good share of the miracles expected from AI.<\/p>\n Listening to what rates are telling us<\/strong><\/p>\n Historically, bond markets have often been a step ahead of equity markets when it comes to anticipating turning points in the cycle.<\/p>\n This should be qualified, however: credit is not sounding the alarm for now. Spreads remain tight and relatively stable.<\/p>\n Higher long-term rates are already having an effect<\/strong><\/p>\n Private markets (Private Credit, Real Estate and, to a lesser extent, Private Equity) are directly exposed to the cost of refinancing. Private Credit, after several years of spectacular growth and its share of sometimes highly speculative refinancings, could well keep making headlines.<\/p>\n Then there is a purely mathematical effect: higher discount rates mechanically reduce the present value of future cash flows and, with it, valuations.<\/p>\n Finally, there is the opportunity cost. With Fed Funds around 4%, cash and high-quality money market instruments are once again a genuine asset class. After fifteen years in which “Cash is trash” had almost become dogma, one might be tempted to think that “Cash is king again”.<\/p>\n So, should we get out of the markets?<\/strong><\/p>\n In our view, market timing remains a particularly inexact science. Exiting the markets requires getting two decisions right: knowing when to sell, and then knowing when to get back in.<\/p>\n We believe the answer lies elsewhere: going back to fundamentals and bringing the allocation back in line with the economic cycle and the level of rates. After all, that is precisely what rising rates are for: slowing the economy to curb inflation, while trying to achieve the holy grail of a soft landing. A delicate balancing act that can sometimes border on wishful thinking.<\/p>\n This means following the sector rotation already under way, with less momentum and more defensive stocks within equities; shorter duration in bonds; more cash; more gold; and more liquid alternative strategies likely to benefit from any market dislocation.<\/p>\n No one can predict the next correction, and we are no exception. But when rates and equities are telling two different stories, it is better to listen to rates.<\/p>\n Fabian Charlier, CFA<\/em><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n [\/et_pb_text][\/et_pb_column] At the start of the year, our analysis identified two extreme scenarios to watch: a significant correction and, at the other end of the spectrum, a melt-up, i.e. an acceleration of the market rally in continuation of previous years. Both have, to some extent, played out. The decline seen in March ultimately proved shorter and […]<\/p>\n","protected":false},"author":3,"featured_media":90567,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":" At the start of the year, our analysis identified two extreme scenarios to watch: a significant correction and, at the other end of the spectrum, a melt-up, i.e. an acceleration of the market rally in continuation of previous years.<\/p>\r\n Both have, to some extent, played out. The decline seen in March ultimately proved shorter and shallower than expected. The melt-up, for its part, partly materialised, driven in particular by technology and the considerable hopes placed in artificial intelligence.<\/p>\r\n But the year is not over yet. And it may still have a few surprises in store.<\/p>\r\n US 10-year yield above 5%<\/strong><\/p>\r\n The yield on the 10-year US Treasury has broken through the 5% mark, reaching a level not seen since 2007. The threshold is symbolic, but no less telling for that. Could this be the catalyst for the next correction?<\/p>\r\n Anyone looking for reasons to worry will find plenty in the news. The geopolitical backdrop remains tense, notably with a conflict around Iran that shows no sign of ending soon. Equity and credit valuations leave little room for disappointment. The Fed, faced with persistent inflation, may be forced to take back more control after falling behind the curve. On top of this come questions over how US debt will be financed and the Treasury's so far unconvincing attempts to contain pressure on long-term yields, with the return of financial repression also in the background. And yet the economy is holding up, at least for now.<\/p>\r\n Animal spirits still alive and well<\/strong><\/p>\r\n Keynes's famous animal spirits remain particularly strong, especially in the United States.<\/p>\r\n Households keep spending, companies keep investing and investors keep buying risk assets, driven by the conviction that artificial intelligence will profoundly transform the economy.<\/p>\r\n Markets thus seem buoyed by the promises of AI and the productivity gains it is expected to bring. They may well be right. But markets are forward-looking by nature: the real question is whether prices already reflect a good share of the miracles expected from AI.<\/p>\r\n Listening to what rates are telling us<\/strong><\/p>\r\n Historically, bond markets have often been a step ahead of equity markets when it comes to anticipating turning points in the cycle.<\/p>\r\n This should be qualified, however: credit is not sounding the alarm for now. Spreads remain tight and relatively stable.<\/p>\r\n Higher long-term rates are already having an effect<\/strong><\/p>\r\n Private markets (Private Credit, Real Estate and, to a lesser extent, Private Equity) are directly exposed to the cost of refinancing. Private Credit, after several years of spectacular growth and its share of sometimes highly speculative refinancings, could well keep making headlines.<\/p>\r\n Then there is a purely mathematical effect: higher discount rates mechanically reduce the present value of future cash flows and, with it, valuations.<\/p>\r\n Finally, there is the opportunity cost. With Fed Funds around 4%, cash and high-quality money market instruments are once again a genuine asset class. After fifteen years in which \"Cash is trash\" had almost become dogma, one might be tempted to think that \"Cash is king again\".<\/p>\r\n So, should we get out of the markets?<\/strong><\/p>\r\n In our view, market timing remains a particularly inexact science. Exiting the markets requires getting two decisions right: knowing when to sell, and then knowing when to get back in.<\/p>\r\n We believe the answer lies elsewhere: going back to fundamentals and bringing the allocation back in line with the economic cycle and the level of rates. After all, that is precisely what rising rates are for: slowing the economy to curb inflation, while trying to achieve the holy grail of a soft landing. A delicate balancing act that can sometimes border on wishful thinking.<\/p>\r\n This means following the sector rotation already under way, with less momentum and more defensive stocks within equities; shorter duration in bonds; more cash; more gold; and more liquid alternative strategies likely to benefit from any market dislocation.<\/p>\r\n No one can predict the next correction, and we are no exception. But when rates and equities are telling two different stories, it is better to listen to rates.<\/p>\r\n Fabian Charlier, CFA<\/em><\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>","_et_gb_content_width":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-90691","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-non-categorise"],"_links":{"self":[{"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/posts\/90691","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/comments?post=90691"}],"version-history":[{"count":2,"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/posts\/90691\/revisions"}],"predecessor-version":[{"id":90693,"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/posts\/90691\/revisions\/90693"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/media\/90567"}],"wp:attachment":[{"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/media?parent=90691"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/categories?post=90691"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/awap.ch\/en\/wp-json\/wp\/v2\/tags?post=90691"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"http:\/\/awap.ch\/wp-content\/uploads\/2026\/09\/20260930_AWAP_graph_10y_US.jpg\")
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