Resilient economic growth and strong earnings support equities despite high expectations and rising longer duration bond yields.

This is according to Thomas Poullaouec, portfolio manager and head of global investment solutions, international, at T. Rowe Price.

T. Rowe Price has maintained its overweight to equities against this backdrop, favouring emerging markets and Asia ex-Japan equities for exposure to artificial intelligence themes, as well as US equities.

“Enterprise adoption is moving toward scaled production, even as regulation and safety draw more scrutiny,” Poullaouec said in a recent update. “Continued investment and adoption support our overweight to U.S. growth stocks.”

This view was echoed by Mabrouk Chetouane head of global market strategy at Natixis Investment Managers, who told a recent media briefing that the firm has a maximum overweight to US equities.

“We were positively surprised by the earnings of the tech sector and the strength of earnings in the US,” he said.

“Even the consumption sector, which is maybe the most fragile in the US because of inflation, the business cycle, the K-shaped profile of growth, they have delivered.”

He also suggested that the broadening out of US equity earnings has reduced the concentration risks some investors feared at the start of the year.

Fixed Income

When it comes to fixed income, T. Rowe Price’s Poullaouec said his firm is underweight fixed income overall and is reducing its bias to short duration following the latest increase in yields, making a short duration call “less compelling”.

“While the risk of higher yields remains the main driver of our underweight, heavy AI-related issuance adds a technical headwind for investment-grade bonds,” he said.

“The same AI cycle can support corporate earnings while requiring enough new capital to create a tougher technical backdrop for investment-grade bonds.”

He added that yields are likely to remain elevated amid persistent structural pressures from fiscal financing, higher term premia, and capital demand.

“A few hikes alongside resilient growth could be absorbed relatively well,” he said. “A longer cycle driven by stubborn inflation would challenge both duration and risk assets.”