We've been de-risking across the board, getting closer to benchmark in equity positions and duration, bringing down factor risk. The longer this persists, the greater the risk to inflation and the economy. There are no hedges in this context—nothing is working right now.

The obvious reason is we don't know how long this will continue. In 2022, the dollar was a hedge; last decade, Treasuries provided downside protection; gold has worked in other circumstances. Now, the only thing you can do is bring risk down.

The bond market is reacting to an increase in headline inflation from higher energy, food, and fertilizer prices. But this is also a drag on growth, happening when the labor market is soft. The notion of just selling bonds into this is less obvious.

At some point, if concerns about growth build with $100+ oil for a prolonged period, you want to start bringing bonds back into your portfolio as a hedge against weaker growth.

One thing clearly going on is pricing out of Fed rate cuts and pricing in a greater possibility of hikes, particularly from the ECB. The front end of the curve is adjusting.

If we're in an environment where $100 oil persists, there's likely a war premium embedded for many months. You've got to bring down your growth expectations, which were high coming into the year. That probably suggests bringing duration up further, which others like JPMorgan have been thinking.

I don't think it's overly complacent; we've already seen a significant adjustment. The US can probably survive a year of $90 oil and still have positive growth, but we won't get the above-trend growth investors expected.

The equity market is responding: the rotation into cyclicals, value, international, and small caps was predicated on above-trend growth. As you price that out, you see a reversal toward defensive parts and tech, which holds up better when economic growth isn't a tailwind.