The consensus, based on 67 Tactical Asset Allocation reports in October, still points to risk-on for November: 71.2% of asset managers are overweight equities, while half are underweight bonds and 58% are underweight cash.
What is changing are the arguments behind these recommendations. After reading these 67 reports and ranking all the arguments, inflation fears turn out to top our macro ranking for the first time. This ranking measures how often a theme is mentioned, but also how it influences the recommendations being made. Of the 43 asset managers writing about inflation, there are 40 where inflation clearly influences their view.
For most asset managers, the genie now really seems to be out of the bottle. The three largest central banks (Fed, ECB and BoJ) all raised their policy rates in September, and yet US core inflation (core PCE) stands at 3.3% and eurozone inflation at 3.8%. A rate hike may slow demand, but the number of oil tankers passing through the Strait of Hormuz is problematically low.
The Macro Theme ranking shows another shift. Hormuz drops to 7th place and the oil price stays in 8th, which indicates that their impact on portfolio adjustments has become less relevant. The impact has not gone away, but has moved from the energy bill to core inflation.
In second place are rising long-term yields and fiscal pressure, and that is where inflation increasingly becomes a budget problem. According to the CBO, Washington paid $1.14 trillion in net interest in fiscal year 2026: more than on Medicare ($1.07 trillion) and over $200 billion more than on defense.
Interest costs grew 11%, and that is more than twice as fast as the defense budget. These higher deficits require more government bond issuance, and more issuance pushes long-term yields higher. In September, the 10-year US Treasury yield rose above 5.2%.
Yet asset allocators are not buying inflation-linked bonds. Inflation-linked bonds remain neutral among strategists and CIOs with a view for the next three to 12 months. The consensus seems to turn against bonds, but not specifically when it comes to short duration. What is clear is that returns are mainly being sought in equities and commodities.
If we zoom in on the camp that finds inflation fears overdone, you end up at disinflation. There you read more about “as supply shocks fade” (J.P. Morgan) and that the priced-in Fed hikes are “excessive” (BlackRock) and “overly aggressive” (DWS). The market seemed to agree with them in October, as the 10-year yield fell globally. And at current rate levels, government bonds are suddenly a cheap corner of the portfolio.
The genie is out of the bottle, and asset managers are no longer trying to push it back in. They let it work for them, with equities and commodities. As long as core inflation stays above 3%, the bottle stays open and the consensus stays risk-on.
New to this? Asset managers are slowly starting to see risks in higher inflation and rising interest rates. The consensus is that the best protection against these risks is still equities and commodities, rather than bonds.
Equities and commodities can help, but neither is a reliable hedge in every cycle.