The Rising Cost of Disinflation
The next percentage point of disinflation may prove considerably more expensive than the last.
RESEARCH //
Regular publications to articulate what we see and how we think
The next percentage point of disinflation may prove considerably more expensive than the last.
Ten years ago, the earnings yield on U.S. equities, as represented by the S&P 500 Index, sat notably higher than the real 10-year U.S. Treasury Note yield. That relationship changed dramatically in 2026.
As professional investors and systematic managers, we see market leadership as the result of a constantly changing mix of valuations, growth, inflation, interest rates, liquidity, geopolitics, sector fundamentals, factor cyclicality, investor behavior, and a bit of je ne sais quoi.
The Federal Reserve raised its target range by 25 basis points this week, bringing the midpoint of the federal funds target range to 3.875%. Though the headline move was modest, we believe that this signifies a broader change in the policy backdrop.
After years of large-cap leadership, Small-Mid Cap (SMID) is back in focus. The strategic case for an allocation to SMID, however, is broader than this year's performance.