The valuations of “risky” assets continued to rise in the third quarter, both in absolute terms and relative to “safe” asset yields. We think that reflects the start of the Fed’s easing cycle and renewed optimism about the US economy after initial worries started to mount near the end of the second quarter.
Meanwhile, the inflation of an AI-fuelled bubble in stock markets, which had driven equity valuations up for most of the year, took the backseat for most of the third quarter. But our base case remains that the bubble could pick up more pace again and inflate quite a bit further before it bursts. We continue to project big gains in equity prices.
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