Key Points: Equity investors get a preview of market fragility, Inflation risks remain tilted to the upside, Consider a measured reduction in risk exposure into year end

The Election is, in our view, the most consequential driver for the Markets this year. Here’s what has changed in the past 24 hours.

Several months of higher inflation have brought rate cut predictions this year down to two from six in January. The result is a weaking bond market, affecting both investment grade and high yield bonds, with conventional, investment grade bonds taking the brunt of losses.

Over the past month yields have bounced between recent highs of 4.36% and just below 4% for the ten year bond.

Stocks have mostly been caught in a state of reverse gravity this year (what goes up - keeps going up) and we’ve all become a little spoiled…until a few weeks ago.