Global equities have rebounded to near-record levels, driven by strong Q1 earnings optimism and improved risk sentiment following a ceasefire, according to BNY’s Head of Markets Macro Strategy Bob Savage [1]. The S&P 500 has seen improved earnings estimates, with whispers of 19% earnings growth and 16% margins in the U.S. [1]. The surge in equity flows this week was attributed to both stronger earnings and hopes that the U.S.-Iran ceasefire could lead to a peace deal [1].
Despite the positive momentum, Savage highlights that elevated cross-asset correlations between equities, the US Dollar (USD), oil, and bonds are complicating equity allocation decisions and clouding the risk-free rate anchor that supports valuations in the US, Europe, and Asia [1]. This high correlation is described as atypical during earnings season, making risk-taking less diversified across asset classes [1].
Fiscal costs are also a concern, with the EU’s estimated at 0.6% of GDP and Asia’s at 1–2% of GDP [1]. Bond markets have not fully priced in the cost of new fiscal spending or the inflationary effects of the supply shock, leading to a shift in monetary policy expectations from easing to tightening [1]. Among developed market central banks, only the Federal Reserve is still seen as likely to ease, with markets pricing just a 40% chance of one rate cut by year end [1].
Emerging market (EM) equities experienced the most extreme rally at the start of 2026, but a 15% drawdown from peak holdings leaves EM shares, particularly in Asia, vulnerable to further reallocation if inflation and policy issues hinder earnings growth [1].
CONCLUSION
While global equities have rallied on strong earnings and ceasefire optimism, persistent macroeconomic headwinds and policy uncertainties are tempering market sentiment. Elevated cross-asset correlations and shifting monetary policy expectations add complexity to equity allocation, especially in emerging markets. Investors remain cautious as fiscal and inflationary risks continue to loom.