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Equities may underperform bonds if earnings falter

As forecasts for corporate earnings in the US finally start to come down amid worries about the outlook for the economy there, this Update considers the implications for equities and bonds.
John Higgins Chief Markets Economist
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Answers to your questions on global markets

We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. In view of the wider interest, we are also sending this Asset Allocation Update to clients of our Global Markets and FX Markets Services.

10 August 2022

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Credit spreads and excess returns

Although the spreads of many “risky” bonds have risen significantly this year, some aren’t currently at levels that have typically been followed by substantial future outperformance of their “safe” counterparts. Markets Drop-In (9th Aug): Chief Markets Economist John Higgins leads this 20-minute briefing on our latest quarterly Outlook reports from our Global Markets, Asset Allocation and FX Markets services. Register now.

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We think the worst is yet to come for most risky assets

Although we think that we have now passed this cycle’s peak in long-dated US Treasury yields, we still suspect that investors are underestimating just how far the Federal Reserve will raise interest rates, and how long it will be before inflationary pressures ease sufficiently for interest rate cuts to come onto the agenda. With that in mind, we think that the yields of most “safe” assets will end this year above their current levels. Meanwhile, given our relatively downbeat view of the global economy, we also expect most “risky” assets to see renewed declines, as risk premia climb and disappointing growth in corporate earnings undermines global equities. We think, though, that the outlook for most safe and risky assets is brighter in 2023 and 2024.

5 August 2022

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We see more trouble ahead for US equities and Treasuries

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The period since the publication of our last Asset Allocation Chart Book on 31st May has brought yet more pain for investors. Between then and 28th June, the returns from all the headline indices that we track, bar USD cash, were negative. That includes the S&P GSCI Commodity, which had been one of the few headline indices to deliver positive returns in the year to the end of May. Asset prices have continued to be undermined by rising bond yields, but investors now also increasingly appear to be fretting about the health of the global economy and the risk of a US recession. That probably explains why oil prices have dropped despite a strained supply backdrop, while industrial metals prices have plunged.

30 June 2022

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A stock market rebound makes little sense if a recession is nigh

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24 June 2022
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