Robeco: Equities Set to Gain Even as Bond Yields Rise

Robeco portfolio manager Aliki Rouffiac remains constructive on equities despite rising bond yields and near-term rate risks. She expects earnings growth to continue in coming months, while US midterm elections and upcoming high-profile IPOs could provide additional support for equity markets.

Analysis

The relevant equity-market question is not whether yields rise, but whether the move reflects stronger nominal growth or a higher real-rate/term-premium shock. The former favors cyclicals, small/mid-cap financials and earnings-sensitive technology; the latter pressures long-duration multiples and leveraged balance sheets. With broad equity valuations still sensitive to real yields, a 25-50bp upward move in the 10-year Treasury without a corresponding upgrade to forward EPS would likely produce multiple compression rather than a durable risk-on rotation.

Election-related positioning can support domestically oriented sectors into November 2026, but the more tradable effect is likely dispersion: banks, defense, industrial reshoring and regulated utilities face materially different policy outcomes. IPO activity is a useful liquidity and risk-appetite indicator, yet it is not inherently bullish for listed equities: heavy issuance can absorb growth-capital flows and create a near-term supply overhang in software, fintech and AI-adjacent peers. Watch whether new issues hold above offer price for 30 days; weak aftermarket performance would signal that institutional risk budgets are already full.

Consensus appears too willing to extrapolate resilient earnings while overlooking margin risk from refinancing costs and the limited ability of lower-quality companies to pass through wage, tariff or input inflation. The constructive case is intact only if upward EPS revisions broaden beyond mega-cap technology over the next 1-3 months. A deterioration in earnings breadth, a 10-year real yield break above its recent range, or widening high-yield spreads would falsify the pro-cyclical equity thesis quickly.

Key Decisions for Investors

• Maintain a modest quality-cyclical barbell for the next 1-3 months: long IWM versus short ARKK in equal dollar amounts. This expresses improving domestic earnings breadth while hedging the most duration-sensitive, financing-dependent growth exposure; exit if 10-year real yields rise 50bp from entry or IWM relative strength fails after the next earnings season.
• Prefer XLF over XLRE through the next two quarters, using a paired position rather than an outright market beta add. Banks benefit if yields rise alongside nominal activity, while REIT valuations and refinancing economics deteriorate under a real-rate shock; the key risk is a sharp curve inversion or credit-spread widening, which would reverse the bank leg.
• Do not chase IPO-linked momentum until the first major offerings demonstrate sustained aftermarket demand. Set an alert for a 30-day cohort trading materially above issue price with limited insider selling; absent that confirmation, treat elevated issuance as a reason to underweight expensive public comparables in IGV and fintech exposure rather than as a standalone long signal.
• Ahead of the election, build only small, diversified policy-dispersion exposure through ITA and PAVE rather than directional election bets. Reassess 60-90 days before voting as polling, tariff proposals and fiscal expectations become investable; take risk down if defense appropriations or infrastructure outlays face credible funding constraints.