Comfortably numb

Rising energy prices and borrowing costs justify a more cautious portfolio stance even though economic growth remains supportive for equities.

• Equity markets recovered after a difficult start to the quarter and consolidated their gains over the past few months.
• Bond-market pressure has intensified amid persistent disruption in energy markets, while interest rates have become more closely correlated with oil prices than at any point in the past year.
• The base case remains that solid growth, strong capital spending, moderate monetary tightening and easing geopolitical tensions will contain the inflation risk.
• Persistently high energy prices and rising borrowing costs have nevertheless increased the risks to the global economy and equity markets.
• Bond-market moves look technically stretched, and the risk-return profile is becoming more attractive over a horizon of one year or longer; emerging-market volatility has reached levels not seen since 2009.

Takeaway: The team entered the final quarter of 2026 with a somewhat more cautious allocation, taking profits on its equity overweight, adding to oversold bonds and further reducing emerging markets, while acknowledging that the economic backdrop still supports equities.