If recent history is any guide, Fed tightening is unlikely to derail stock markets to the extent that many fear. Our view is that while US equities will struggle to make further headway, they will largely shrug off more restrictive monetary policy at home. And we think equities elsewhere – both in the developed and emerging worlds – will generally fare better. By contrast, we expect US Treasuries to perform badly – we don’t expect another bond market “conundrum” – and we doubt Gilts, and even Bunds and JGBs will be completely immune. Finally, we suspect the rally in the dollar is far from over given the prospects for monetary policy in the US and the rest of the world.
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