Reinventing portfolio diversification

Last week, US stocks were close to all-time highs. U.S. 10-year bond yields jumped to nearly 4.40% ahead of the Federal Reserve’s expected rate cut.

Main points

• Diversify in a context of transformation: We see an ongoing transformation that makes a wide range of outcomes possible. This changes how we evaluate portfolio diversification and the drivers of risk and returns.
• Market context: Last week, US stocks were close to all-time highs. U.S. 10-year bond yields jumped to nearly 4.40% ahead of the Federal Reserve’s expected rate cut.
• The week ahead: Even if the Fed cuts rates further in 2025, markets appear to align with our view that persistent inflation means policy rates will remain well above pre-pandemic levels.

We believe economies are undergoing a transformation that could continue to influence long-term economic trends. This creates a wide variety of potential outcomes and, in our view, requires the use of scenarios to guide portfolio construction. In this new context, government bonds have become a less reliable cushion against declines in risky assets. Therefore, investors should consider new diversification assets – not as a substitute for bonds, but to diversify their exposure to differentiated risk and return drivers.

To access the Weekly Market Commentary in its entirety, in English, click ici