Rising U.S. bond yields have shocked financial markets out of their low volatility complacency. The fragile nature of last year’s Goldilocks-like environment of strong growth and easy money central bank policies has been exposed. The result has been a correction in equity multiplies and credit spreads from historically lofty valuations. Expect more to come. The rules that investors have operated under for the last decade are changing. There’s greater confidence that the post-crisis era of ultra-low inflation is ending, and so is support from unorthodox Federal Reserve policies that suppressed market rates and volatility. Monetary policy is tightening at the same time fiscal policy is loosening. On top of that, markets have all the earmarks of late-cycle dynamics, such as excessive risk taking and financial leverage. The confluence of changing market, policy and fundamental dynamics is a game-changer for the risk cycle and asset valuations. Fundamentally, the U.S. economy is growing ...

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