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Limited scope for valuations to push risky assets higher

In our view, changes to the economic and policy outlook since the pandemic mean that corporate credit spreads in the US may remain lower than in their recent past for some time. Nonetheless, we see limited scope for them to fall much further from here. This, coupled with our view that US long-dated TIPS yields will rise gradually over the next couple of years, suggests to us that further gains in US equities will be relatively small, and increasingly driven by expectations for strong earnings rather than higher valuations.

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