Inflation "Stuck" Into 2026 & Case for Incoming International Outperformance

Core Insights - The bond market has stabilized, with 10-year yields hovering between 4.1% and 4.2%, contributing to support in the equity market [2] - Economic data, particularly GDP, will be a focal point for market participants, with expectations of consumer strength influencing future economic outlook [3][4] - Long-term yields are expected to remain rangebound until 2026, with potential for shifts based on economic data [4][5] Fixed Income Market - The lack of volatility in the bond market has been beneficial for equities, and expectations suggest that yields will remain elevated and rangebound [8][10] - The market anticipates one to two rate cuts by the Federal Reserve into 2026, but inflation is expected to remain relatively stable [11][12] - The term premium has increased due to uncertainties in fiscal policy and Federal Reserve actions, indicating potential for higher long-term yields [13][14] International Equity Market - International stocks are projected to see earnings growth of 11.5% next year, up from flat earnings this year in the Eurozone, with attractive valuations compared to the S&P 500 [7] - The broadening of the equity market rally may benefit international stocks, particularly as investors seek growth beyond technology sectors [6] - Japan is showing stronger performance compared to the EU, with increased defense spending and positive economic indicators [15][16] European Market Outlook - Germany's fiscal stimulus program is expected to ramp up next year, which could enhance growth and earnings in the Eurozone [16][17] - Recent optimism from the European Central Bank regarding GDP forecasts is supported by government spending, exports, and corporate investments, including in AI [17][18] - Increased lending in the Eurozone is anticipated to boost growth and earnings, contributing positively to the market outlook [18]