Why we still aren’t convinced the S&P 500 is in a bubble

Even though the S&P 500 has risen by almost another 25% or so this year, we are still not persuaded that the US stock market is in a bubble that is about to burst.
John Higgins Chief Markets Economist
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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

Asset Allocation Update

Case for US equity underperformance is looking strong

Although mid- and large-cap equities have fared better in the US than the rest of the developed world in most years since the Global Financial Crisis (GFC), we think the chances of it happening in 2022 are slim.

10 January 2022

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Some more thoughts on the puzzling behaviour of Treasuries

Last week’s behaviour of the Treasury market is puzzling for two reasons. First, a further paring back of expectations for tighter monetary policy following the Fed’s mid-week meeting might reasonably have been expected to reduce the yields of shorter-dated bonds by more than those of their longer-dated counterparts. Yet, there was a bull flattening of the yield curve out to the 6-year mark. Second, the reduction in the implied real yield of 10-year Treasuries – and in the actual real yield of 10-year TIPS – coincided with a renewed outperformance within the US stock market of some COVID-19 vulnerable sectors, amid news of a new treatment developed by Pfizer that is reportedly extremely effective at reducing the risk of hospitalisation and death from the virus. This is the opposite of what happened this spring and to a lesser extent in September.

8 November 2021

Asset Allocation Update

Reading the runes of relative valuation within the US stock market

One reason to think that the performance of the US stock market will underwhelm, at least in the long run, is that some of the gaps between the valuations of its most highly and lowly valued companies have become even larger than they were on the eve of the Great Crash and the bursting of the dot com bubble.

4 November 2021

Asset Allocation Outlook

Risky assets face a more challenging backdrop

While the combination of a strong economic recovery and accommodative monetary policy has fuelled healthy returns for many investors over the past 18 months or so, we think that the macroeconomic backdrop is now becoming more challenging. We still expect the economic recovery in the US to continue, but think that growth will fall short of expectations there, at the same time as it continues to lose momentum in China. Meanwhile, we suspect that the recent jump in inflation in the US will prove to be more persistent than most anticipate. As investors take note of this inflation, we forecast that the returns from most “safe” assets will be quite limited. Although we still project that “risky assets” will make gains, higher valuations and our view that global growth will underwhelm suggest to us that the returns over the next couple of years will generally be far less impressive than they have been since Q2 2020.

29 October 2021
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