Global chief investment strategist at BlackRock Wei Li argues that recent market moves — rising bond yields alongside strong equities — reflect a structural shift rather than irrationality. The 30-year Treasury yield hit a 19-year high above 5.30 per cent, while the S&P 500 remains near record highs. Traditionally, higher yields pressure equities by raising the cost of capital, but that correlation has weakened.

Li explains that the economy has moved beyond the Great Moderation (1980s–2020), a demand-driven era where supply kept pace with demand and central banks could ease downturns with rate cuts. Today, supply constraints — labour scarcity, energy security priorities, rewired supply chains, ageing populations, and heavy government spending on defence and infrastructure — mean inflation persists even when growth slows. Central banks cannot produce more electricity, labour, or semiconductors.

This new regime of structurally higher capital costs, amplified by the AI build-out and rising US deficits, explains why earnings yields on equities look expensive relative to bonds. Markets are pricing in a world where growth depends on expanding supply, not just stimulating demand. What appears contradictory is actually rational adaptation to a changed macroeconomic landscape.