Back in January 2011, a handful of bank strategists declared that financial markets were on the cusp of a major reversal which they called ‘the great rotation’. The US economy was looking up, so investors would switch from safe but low-yield fixed income into equities that would increase in value alongside gross domestic product. A larger group of strategists predicted the same thing in December 2012, in September 2014, and again in March 2015. All the while, the bonds bull market marched on.
Fast-forward to today, and the so-called great rotation is being hailed yet again. Admittedly, things are a little different this time. US policy rates have risen and the Federal Reserve has given the clearest sign yet that it will hike rates multiple times in the next 12 months. A new US president has promised the biggest tax cuts since the 1980s and a $1000bn fiscal stimulus. The discrepancy between bond fund outflows and equity fund inflows has reached an all-time high.
