Global equities have rebounded to near-record levels, supported by optimism over strong Q1 earnings and improved risk sentiment linked to a US\u2013Iran ceasefire. The rebound has helped markets recover most losses tied to the war.<\/p>\n
S&P 500 estimates have improved, with market talk of 19% earnings and 16% margins in the US. Equity inflows rose during the week, driven by stronger earnings expectations and hopes of progress towards a peace deal.<\/p>\n
Equities have shown unusually high correlation with the US Dollar, oil and bonds during earnings season. This lack of separation between asset moves has made equity allocation harder.<\/p>\n
Estimated fiscal costs are 0.6% of GDP in the EU and 1\u20132% of GDP in Asia. Bond markets have not fully priced in new fiscal spending or inflation effects from a supply shock, and policy expectations have moved from easing towards tightening.<\/p>\n
Among developed market central banks, markets still see the Fed as the only one likely to ease, with a 40% chance of one cut by year end. This has weakened the risk-free rate reference used in valuing equities across the US, Europe and Asia.<\/p>\n
At the start of 2026, the rise in equity holdings was strongest in emerging market shares. A 15% drawdown from peak holdings leaves emerging markets open to further reallocations, especially if inflation and policy conditions limit earnings growth in Asia.<\/p>\n
Global equities are pushing near-record levels, but the high correlation between stocks, the US Dollar, and oil creates a fragile setup. The CBOE Volatility Index (VIX) has fallen to 14.5 on ceasefire optimism, making it an opportune time to consider hedging strategies against a broad market downturn. This situation is unlike what we saw in mid-2025 when asset classes showed more independent movement.<\/p>\n
Bond markets seem to be underpricing the risk from new fiscal spending and persistent supply-side inflation, as evidenced by the latest March 2026 CPI reading of 3.7%. This challenges the stability of the risk-free rate we use to value stocks. With markets only pricing a 40% chance of a Fed rate cut by year-end, uncertainty around policy is set to increase.<\/p>\n
This policy confusion suggests preparing for sharp moves in either direction rather than betting on a single outcome. Strategies like long straddles or strangles on major indices like the SPX could be effective, especially ahead of the next Federal Reserve meeting. Such positions would profit from a significant price swing, regardless of whether it’s triggered by hawkish inflation data or a dovish policy surprise.<\/p>\n
We see particular vulnerability in emerging markets, which rallied hard to start 2026 and still appear overextended despite a recent 15% pullback. If Asian inflation data continues to climb, it could block further earnings growth and trigger another sell-off. Buying puts on broad emerging market ETFs could serve as an effective hedge against this specific risk in the coming weeks.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Global equities rebound near records on Q1 earnings optimism, ceasefire hopes; correlations complicate allocations, emerging markets lag.<\/p>\n","protected":false},"author":87,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-51158","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t