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Our views 07 November 2023

Clockwise: Bond yields fall from recent highs but what next?

5 min read

Stock markets rebounded over last week and had their best week since November 2022. The rally in equities came as bond yields fell from highs on a set of softer US data, alongside the Federal Reserve keeping rates on hold with perhaps a more dovish tone from the Chair Jerome Powell at the press conference.

This relief rally does not come as a great surprise; last week investor sentiment reached overly depressed levels on worries around higher rates, which provided a case for buying a dip for the first time since the UK mini-budget crisis in October 2022. Markets were arguably primed for a rebound.

Softer activity data has tipped the Investment Clock into the edge of Reflation after spending the last eight months in Recovery. A move deeper into this phase would support further drops in bond yields but the Investment Clock remains close to the crosshairs as shown below.

Investment Clock edges into Reflation

Investment Clock edges into Reflation

Source: Royal London Asset Management as at November 2023. For illustrative purposes only. Trail shows monthly readings based on global growth and inflation indicators.

Our base case assumes that we move this way with labour markets softening but it is possible for the Clock to move towards Recovery if global economies avoid recession or even back towards Stagflation if energy prices spike over the winter.  

Different assets perform differently in different phases as shown below. While bonds tend to do well in Reflation, equities tend to do well in Recovery and commodities tend to do better in Stagflation so we’re ‘watching the Clock’ and monitoring business cycle developments carefully.

Historic asset class returns through business cycles

Historic Asset Class Returns through business cycles

Past performance is not a guide to future performance. Source: Royal London Asset Management. For illustrative purposes only. Data based on an analysis of business cycles since April 1973. As at 01/01/2023.


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.