The 40-year period of disinflation and long economic cycles has ended. The new regime features shorter, hotter cycles, persistent inflation, and higher volatility, demanding more tactical investment approaches akin to the post-World War II environment.
Contrary to the popular narrative focusing on debt, the main force pushing interest rates up is robust nominal GDP growth, fueled by aggressive post-pandemic fiscal policy. This era of 'fiscal dominance' changes the fundamental drivers of the bond market.
The S&P 500's ability to withstand recent market rotations is not an anomaly. Its high concentration of 'quality' companies (stable growth, high margins) makes it a durable leader in the current environment of shorter, more volatile cycles.
Investors should not be complacent about oil prices. Historically, rising crude oil has been a more reliable negative factor for equity markets than falling crude has been a positive one. A stable, non-spiking oil price is sufficient for a constructive equity view.