Putting risky asset valuations into context

This Update compares the valuations of the twelve different “risky” asset classes that we cover on our Asset Allocation service, both relative to one another and to the yields of “safe” assets, as well as explaining how those valuations inform our long-term returns forecasts.
Oliver Allen Markets Economist
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Examining the threat to US equities from rising wage inflation

We expect rising wage inflation in the US to squeeze the profits of the non-financial corporate sector, which were a record high as a share of its output in Q2. This is one reason why we think the upside for the stock market there is limited, despite expecting it to continue to outperform Treasuries.

22 October 2021

Asset Allocation Update

Energy, inflation and asset allocation

We doubt that the recent surge in energy prices will be sustained, but still think that investors are underestimating the likely strength of broader price pressures in the US over the next few years. This Update explains our view, puts it in historical context, and considers the implications for asset allocation.

15 October 2021

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Correlation between US equities & Treasuries not set in stone

While many observers seem to have been surprised by last month’s joint sell-off in US equities and Treasuries, there is no reason in principle why the two assets should be negatively correlated. It all depends on the economic and policy backdrop. Our view is that future returns from both will disappoint.

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What to make of the US stock market’s relative valuation?

The high valuations of US equities relative to those elsewhere are, in our view, another reason to think they will lag their peers in the rest of the world over the coming years. What next for the ECB? We’re hosting a post-mortem after Thursday’s Governing Council meeting at 1100 ET to discuss its decision and our views on the euro-zone’s economic and inflation outlook. Register here.

8 September 2021

Asset Allocation Update

EM assets & the risk of higher inflation

We think that there is a risk of a period of moderately higher inflation in some major emerging markets (EMs) over the coming years. If that came to pass, it would probably be bad news for local-currency sovereign bonds in these markets, but not necessarily for EM equities or sovereign dollar bonds.

3 September 2021

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Jackson Hole, tapering, and the risk of higher Treasury yields

We doubt that a hint at this week’s Jackson Hole symposium that the Fed may soon wind down its bond purchases would spark a sell-off in US Treasuries as dramatic as 2013’s “taper tantrum”. However, we still think that the risks are skewed towards yields rising over the next couple of years.

25 August 2021
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