Bonds Are Ready to Reap Benefits of Peak Rates Now. Stocks Not Just Yet

Interest rates are peaking. That’s a tailwind for valuations of both bonds and stocks. But bonds will benefit first, especially investment-grade debt where the yield pick-up is significant and the default risk is low. Equities have more earnings downside risk that won’t diminish for at least a few quarters.

You knew it was coming. Inflation worries are giving way to concerns that the economy is about to slow down. That means the market narrative that dominated much of this year is about to shift. At least, that’s the case for fixed income, where the carnage is mostly over. Investment-grade bonds look particularly attractive for the first time in years. Stock investors will still need to be patient until earnings can shake off the effect of a faltering economy.