Supply Shocks, Inflation, and Global Equity Strategy (with Romaine Bostick, Katie Greifeld)

Eric Varvel sees a disconnect between high equity valuations and the biggest supply contraction in his adult life, which he believes will resolve through higher inflation. He expects upward pressure on long-term rates independent of the Fed, favoring staying away from long-term bonds. He is bullish on European equities relative to the US and sees structural dollar weakness benefiting emerging markets.

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Lazard 8.5
Investment Bank $259.70B
Eric Varvel 9.0

Supply Shocks, Inflation, and Global Equity Strategy (with Romaine Bostick, Katie Greifeld)

dxy

Structurally, I think the longer trend toward dollar weakness is the percist, which would give a lot of likes to DM from here.

ndx

I am defensive about for global equities in the near term.

rut

He is defensive on global equities in the near term, which would include small caps, but his bullishness on EM and Europe suggests a rotation away from US large caps, not necessarily a bearish view on RUT.

yields

I do think we're likely to see upward pressure in long term rates regardless of what the Federal Reserve does to short term rates in the medium term.

Questions whether the market's record highs are justified given concerns about oil prices and geopolitical tensions.

Romaine Bostick
Eric Varvel

There is an enormous disconnect between near all-time high equities and the biggest supply contraction in his adult life. This tension will likely resolve through meaningfully higher inflation.

That tension is one that I think can only resolve itself through meaningfully higher inflation over the year to come.
Asks if he anticipates a meaningful uptick in interest rates and what the effect would be.

Romaine Bostick
Eric Varvel

Expects upward pressure on long-term rates regardless of Fed action on short-term rates, driven by structural supply constraints (AI productivity boom vs. oil shock).

Most investors... have spent their whole career focused on demand management... 2026 in particular have really been about changing supply constraints.
Asks for investable implications of the long end moving independent of the Fed.

Katie Greifeld
Eric Varvel

Prefers staying away from long-term bonds. The Fed's job on the front end is the hardest in modern history. He is better off focused on the long end where structural trends are aligned.

For my money, you're better off focused on the long end where the structural trends are kind of cutting all in the same direction.
Asks if structurally higher rates have a read-through into the equity market.

Katie Greifeld
Eric Varvel

Higher rates and oil shock should have led to softer equities, but the AI trade has prevented it. This is not sustainable; he is defensive on global equities in the near term.

The fact that there hasn't been is evidence of the potency of the AI trade... But that can't last forever.
Asks if the outperformance of non-US markets is cyclical or structural.

Romaine Bostick
Eric Varvel

Emerging markets are beneficiaries of structural forces (dollar weakness, diversification by global reserve managers). The normal transmission mechanism of higher US rates hurting EM is broken.

I think that transmission mechanism is broken. It makes me very optimistic.
Asks about the outlook for European equities given the war and oil supply shock.

Katie Greifeld
Eric Varvel

He is more bullish on European equities than he has been in a long time. They have a better monetary/fiscal policy posture to weather supply shocks and haven't seen the AI overvaluations of US stocks.

I think they've got themselves into a better position with regard to their monetary and fiscal policy posture than the United States have.

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