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MarketScape · 05.13.24

Upgrading Equities Over Bonds

We explore how stabilization and growth of global markets may potentially shift preferences toward equities relative to bonds.

  • Equity
  • Economic Insights & Trends
  • Market Commentary
  • Portfolio Construction

Key Points

What it is

Global economic resilience likely favors stocks over bonds, driven by strong growth in the U.S., Europe, and China.

Why it matters

Awareness of broad economic movements around the world is crucial for investors aiming to navigate the complexities of the market.

Where it's going

Moving forward, moderate interest rate adjustments coupled with steady economic growth has the potential to enhance equities relative to bonds in global portfolios.

So far this year, growth has remained remarkably strong while progress on inflation has stalled. As a result, market expectations of interest rate cuts have come down from six to two. To us, the economy’s resilience and the upward pressure on prices are signs of economic strength. In this environment, we see greater potential for stocks to outperform bonds. We recommend adding to stocks, both in the U.S. and globally, by reducing allocations to fixed income and natural resources.  Let’s take a closer look.


With the unemployment rate below 4%*, the strength of the U.S. consumer is supported by a strong labor market. People are earning more, and their incomes are increasing faster than inflation. Interest rates are high relative to history but projected to come down as monetary policy becomes less restrictive over the coming months. Fed Chair Jay Powell has reiterated that the committee has no plans to raise  further.


Economic strength is broadening globally, particularly in Europe and in China. Europe appears to have emerged from a technical recession. In China, deflation risks remain but the manufacturing sector shows some signs of progress. This ongoing expansion points to further upside for global stocks relative to bonds.  Although U.S. stock valuations are high, we think equities will continue to rise if earnings growth remains strong. It’s important to note that the recent decline in stock prices resulted from a multiple correction rather than a downgrading of earnings expectations.


For these reasons, we are overweight stocks relative to bonds with overweight exposures across all major regions, including international stocks. Of late, global stocks have slightly outperformed U.S. stocks despite a stronger dollar. Stock valuations are reasonable outside of the U.S. and we expect global stocks to continue to outperform bonds as growth expands globally.  We fund our   by reducing allocations to fixed income and natural resources.


Longer-term investment-grade corporate bonds are at risk if bond yields rise, which contributes to our preference for higher-yielding bonds. However, there is little room for high-yield prices to climb, meaning returns for high-yield bonds and investment-grade bonds will likely be modest. Therefore, we are underweight investment-grade bonds, inflation-protected bonds, and cash within our fixed income portfolios.



*Unemployment rate 3.9% as of April 2024.

Main Point

Global Market Stability Suggests Shift Toward Equities

With global economies showing potential for stability and growth, there is a notable interest in equities over bonds. We examine what’s driving this shift and discuss possible implications for portfolios in a dynamic financial environment.

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Anwiti Bahuguna, Ph.D.

Chief Investment Officer — Global Asset Allocation

Anwiti Bahuguna, Ph.D., is chief investment officer of global asset allocation for Northern Trust Asset Management. She is responsible for managing investment performance, process and philosophy for multi-asset strategies globally. Anwiti leads NTAM’s strategic asset allocation, tactical asset allocation and capital market assumptions, and oversees the portfolio construction group and multi-manager business.

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