On Bloomberg Television, Subramanian argued that bonds have become a credible rival to stocks again, pointing to a 10-year Treasury risk-return profile she put "above 5%." Her group's valuation work indicates the S&P 500 may deliver less than that over the coming 10 years. Policymakers, she said, are keen to keep longer-dated borrowing costs from drifting too high, with both the Federal Reserve and the Treasury Secretary watching the far end of the curve.
She also flagged structural forces that could cap rates: demographics that point to a lower ceiling than in the 1970s and 1980s, and the possibility that artificial intelligence eventually leans against inflation. In her view, yields may be unlikely to push much past 6% to 7%. Even at those levels, she said, equities should be able to handle it.
When a major strategist says bonds beat stocks, portfolios tend to move. Market Briefs covers allocation calls free every weekday.
The recent slump in bonds has been driven by investors rapidly resetting their expectations for US rate hikes to tackle energy-fed inflation. A bounce in Treasuries on Tuesday faded, and 10-year yields topped 5.30% on Wednesday morning.
Equities have taken those higher yields in stride. The S&P 500 finished at a new high on Tuesday, its first since August, helped by sturdy earnings and enthusiasm around AI spending. Against that resilience, Subramanian flagged a risk: analysts expect record-high profit expansion for the S&P 500 during the coming five years. That sets a high bar.
None of this says stocks are broken, but it does suggest the easy optimism has a higher hurdle. Keeping an eye on how expectations meet reality - earnings, inflation, and where long rates settle - will tell you which side of the ledger is earning its keep.
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