Revisiting the relative valuations of US equities and bonds

Although the pull-back in the S&P 500 last month was probably influenced by a sell-off in Treasuries (see here), we don’t subscribe to the view that stocks are in a big bubble that bonds are bound to burst soon.
John Higgins Chief Markets Economist
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Asset Allocation Update

We doubt US equities will underperform across the board

We forecast that equities in other developed markets (DMs) will outperform US equities over the next couple of years. By contrast, we expect equities in many emerging markets (EMs) to underperform their US peers. That divergence in performance relative to the US would be a break with the typical pattern.

21 January 2022

Asset Allocation Update

Our outlook for fx-hedged returns in 2022

When it comes to developed markets (DMs), we suspect that fx-hedged returns will be significantly better than unhedged returns for US dollar-based investors in foreign-currency-denominated assets.

17 January 2022

Asset Allocation Update

EM equities may continue to underperform in 2022-23

We think that emerging market (EM) equities will continue to underperform their developed market (DM) peers over the next couple of years, even if that underperformance is far less stark than it was in 2021.

13 January 2022

More from John Higgins

CE Spotlight

What would an era of higher inflation mean for markets?

We expect underlying inflation in the US to be significantly higher over the next decade on average than it has been over the last one. Nonetheless, we don’t think that it will climb sharply from here, or that it will coincide with much weaker economic growth or tighter monetary policy. So, in our view, markets will not falter in the way that they did during some periods of high inflation in the past.

29 September 2021

Asset Allocation Chart Book

Developments in China shake up the outlook

Three key developments in China over the past month or so are worth highlighting, as they feed into our broader asset allocation forecasts for the next couple of years. First, what started as a regulatory crackdown on a handful of sectors seems to have morphed into a broader ideological campaign, with major implications for a wide range of Chinese companies. Second, distressed property developer Evergrande has slid further towards default, heightening concerns about the country’s construction sector in particular, and its financial system more generally. Third, China’s economy generally has shown further signs of slowing.

16 September 2021

Capital Daily

What to make of inflation and bond yields in the UK and US

The renewed rise in consumer price inflation in the UK reported today contrasts with the dip in the US announced yesterday. Admittedly, the former has risen from a low level, while the latter has eased back from a high one. But these outcomes have coincided with a recent relative shift in inflation compensation in the two economies, which has fed through to some underperformance of Gilts vis-à-vis Treasuries. We don’t expect inflation in the UK and the US to head in opposite directions indefinitely, though, and foresee a smaller rise in the 10-year yield in the former than the latter between now and the end of 2022.

15 September 2021
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