For wealth advisors evaluating asset allocation strategies, the bond market is offering one of its most compelling relative value opportunities in years.
According to Apollo Global Management’s chief economist Torsten Sløk, high-quality fixed income is now yielding more than the expected return on equities—a reversal of the pattern that defined much of the last decade.
Sløk notes that the yield on investment-grade corporate bonds and even short-term Treasurys has surpassed the forward earnings yield of the S&P 500. Historically, equities have compensated investors with higher expected returns to justify their greater risk, but that advantage has eroded. As he put it: “Investors buying the S&P 500 today are not rewarded for the risks they are taking.” For RIAs, this development provides a critical data point for client discussions about portfolio construction and risk-adjusted returns.
The dynamic is particularly striking given the Federal Reserve’s recent signals that it could begin cutting rates as soon as next month. Typically, easing monetary policy pushes bond yields lower while boosting equity valuations. Yet the opposite is occurring: fixed income yields remain elevated, while equity earnings yields have been compressed by stretched valuations. The “flip” in relative attractiveness underscores how unusual today’s market environment is—and why advisors should reassess traditional assumptions.
Compounding the challenge for equities are concerns about tariffs, slowing global growth, and U.S. economic resilience. The S&P 500 continues to trade near record valuations, leaving little margin of safety should earnings disappoint or macro conditions weaken. Sløk’s analysis suggests that investors are underpricing risk in equities while bonds now provide not only more attractive yields but also greater stability in uncertain markets.
The shift in relative value has not gone unnoticed among other major firms. Vanguard made headlines earlier this summer by recommending an allocation as high as 70% to bonds and just 30% to equities—a stark reversal of the long-standing 60/40 framework. Goldman Sachs has also warned that U.S. equities could underperform bonds over the next decade, estimating a 72% probability that the S&P 500 will trail fixed income returns and even a 33% chance that it fails to outpace inflation. Morgan Stanley has echoed similar caution.
For advisors, these perspectives reinforce the importance of revisiting portfolio allocations, especially for clients nearing or in retirement who prioritize income and downside protection. Higher yields in Treasurys and investment-grade corporates now offer a compelling alternative to dividend stocks for generating cash flow, while also reducing portfolio volatility. At the same time, the opportunity set allows RIAs to position clients more defensively without necessarily sacrificing total return potential.
The takeaway is clear: the balance of risk and reward has shifted. Equities may still play a central role in long-term growth strategies, but in the current environment, bonds are providing better compensation for risk. Advisors should be prepared to recalibrate portfolios accordingly, ensuring client allocations reflect both market realities and individual financial goals.
