Stagflation is drawing near.

Amid energy geopolitical conflicts, heightened geopolitical tensions, and a high-interest-rate environment, rising bond yields, widening credit spreads, and a rebound in inflation point to a macroeconomic structural shift. Investors will need to move from a technology-led approach to allocating toward commodities and hard assets.

By mid-2026, the global economy faces multiple overlapping pressures. The ongoing conflict between Iran and the U.S. continues to affect shipping through the Strait of Hormuz. Although some tankers have resumed passage, traffic volume remains far below pre-war levels, keeping Brent crude prices fluctuating in the $70–$100 per barrel range. Distillate fuel prices (such as diesel and jet fuel) remain sticky, and the potential risk of a lockdown of the Red Sea shipping route makes a significant inflation rebound in the third and fourth quarters highly likely.

As a macro signal, the bond market has clearly reflected this pressure. The yield on the 10-year U.S. Treasury has risen to above 4.6%, while the 30-year yield has touched levels not seen since 2007, at about 5.13%. This rise is not merely due to slower growth. It is the result of energy shocks, financing of massive fiscal deficits, and competition among mega tech firms for capital expenditures in data centers working together. U.S. government debt interest spending has reached $1.1 trillion. In a high-rate environment, each upward move in yields significantly magnifies the cost of rate resets.

Energy shocks transmit to inflation and bond yields

The Strait of Hormuz, a crucial bottleneck for global oil transportation, has seen long-term interruptions (already exceeding 120 days), leading to pronounced secondary and tertiary supply-chain disruptions. Countries such as Saudi Arabia and the UAE are accelerating the construction of multiple bypass pipelines to reduce reliance on the strait, but in the short term it is still difficult to fully offset geopolitical risk. Analysts expect that if the disruption persists, diesel prices could rise significantly further, pushing overall CPI higher. The Federal Reserve faces a difficult choice between an inflation rebound and economic growth support, with the probability of a stagflation environment increasing.

Against this backdrop, the Federal Reserve is unlikely to raise rates substantially. The average weighted maturity date and coupon-rate structure of government debt mean that rate hikes would quickly increase the interest burden and squeeze fiscal room. Historical experience suggests that a policy preference for periods when inflation runs above interest rates helps dilute the debt stock with “cheaper dollars.” Today, the Fed’s actual inflation target has been interpreted by the market as approaching 3%, rather than the official 2%. This “dirty secret” supports the performance of hard assets such as gold.

Credit market warning: hyperscalers and consumer pressure

The credit market signal is especially clear in leading equities. Credit default swap (CDS) spreads for hyperscalers such as Oracle and Nvidia have continued to widen, reflecting the risk of massive off-balance-sheet financing for data centers. In 2026, capital expenditure by tech giants is expected to reach $700 billion, far higher than earlier expectations, with most of it funded through debt. This directly competes with U.S. Treasury issuance, intensifying pressure for yields to move higher.

The consumer side is also weak. Restaurant stocks such as McDonald’s and Darden Restaurants have seen lows pushed downward. Even though CCC-rated high-yield bonds still have nominal spread levels, underlying credit quality is deteriorating in real terms. The bottom 60% of consumers are squeezed by high prices and borrowing costs. The banking system may price perfectly, but risks from commercial real estate valuation resets are lurking. Historically, the pattern of credit leading equities was validated during the 2008 financial crisis, and now similar fissures are forming.

The stock market appears strong on the surface (S&P 500 valuations are still at historical highs), but leadership is broken. Core tech stocks such as Nvidia, Microsoft, and Meta have essentially been flat since 2025. Money is rotating from the technology sector to hard-asset sectors such as energy and basic materials. Seasonal factors are also unfavorable: the probability of a historic pullback in September–October is high, and combined with rising prices of China-U.S. chip memory, it further pushes up costs for consumer electronics.

The dollar and the reserve-currency position in a multipolar world

In the short term, the dollar is supported by the front-end yield curve (rising 1-year T-bill rates bring spread advantages), but in the long run it is entering a secular bear market. Global sanctions are pushing some countries to seek de-dollarization alternatives and diversify reserves, with countries such as the BRICS promoting diversification. Even though the dollar will remain the main reserve currency for the next 30 years, its dominance is being gradually eroded. The DXY index is currently trading around 101, with expectations for 2026 overall skewing weaker.

In a multipolar environment, the low-inflation and smoothly operating supply chains of the unipolar era are gone. Global conflicts, high interest rates, and rebuilding needs (Iran, Gaza, Ukraine, and America’s aging power grids) jointly drive structural inflation. Elon Musk’s 100 million robot plan and AI data center expansion will significantly boost demand for commodities such as copper and uranium. Equipment stocks such as Caterpillar therefore hit record highs.

Investment strategy reconfiguration: a new 35/35/30 allocation framework

The traditional 60/40 stock-bond portfolio has massively underperformed since 2021–2022. To adapt to the new environment, the approach needs to shift to balanced allocation: about 35% stocks, 35% bonds, and 30% commodities. This framework emphasizes owning businesses with tangible assets, such as copper mines, oil and gas producers, uranium producers, and gold mining (the GDX component stocks’ free-cash-flow yield is attractive, while production costs are far below the current gold price).

Specifically:

• Energy and commodities — Oil and gas companies, FCG ETFs, and natural gas producers benefit from the surge in electricity demand.

• Gold and mining — Performs well in a stagflation environment.

• Avoid excessive tech exposure — Tech weight in the S&P 500 is already close to 50% (including SpaceX, OpenAI, etc.). Institutions are shifting toward equal-weight or hard-asset-tilted portfolios to reduce single-sector risk.

Amid reduced willingness among foreign central banks to buy Treasuries, the U.S. maintains Treasury demand through banking-regulation incentives, stablecoin legislation (stablecoin holdings rising from $75 billion to $250 billion), and tactical operations by the Treasury Department. But these “dirty-shirt” measures cannot fundamentally resolve structural fragility.

Risk outlook and policy implications

Looking at the medium term, energy prices, geopolitical events, and competition for capital expenditures will continue to push bond yields higher. If the Strait of Hormuz disruption is prolonged, inflation will further throw off the medium-term election calendar and the Fed’s path. Risks of commercial real estate and consumer debt resets could trigger credit events, which in turn would weigh on equities by a 20–30% pullback.

For ordinary investors, when the 10-year yield moves toward 5% or higher, it will significantly raise housing mortgage rates and business borrowing costs, and compress equity valuations through higher discount rates. Even non-direct investors will be affected through higher living costs, a tighter credit environment, and potential economic slowdown. Historically, the massive debt issued during low-rate eras (over $60 trillion in various bonds from 2017–2021) has generated large unrealized losses in a high-rate environment; similarly, Apple’s low-coupon bonds are currently trading at a steep discount.

Conclusion: Bond and credit markets are the real signals, leading the stock market’s appearance. In the new paradigm of multipolarity, high interest rates, and high inflation, investors must rebuild portfolios, embrace hard assets and commodities, and reduce excessive reliance on overvalued tech. Only by closely tracking the yield curve, CDS spreads, and commodity dynamics can risk-adjusted returns be optimized in an uncertain environment.

This shift is not just a tactical adjustment—it is a strategic adaptation, an inevitable requirement to move from the windfall of unipolar globalization to the frictional reality of a multipolar world. Over the coming months, market fissures may become even more visible, and cautious allocation will become a core competitive edge.