The recent joint announcement of China and the United States, which provides for the cancellation of 91% of the additional duties and the suspension of 24% of the counter-milders, triggered a sudden rise in the S&P 500 index (the most important US share index) and gods Main risk assets.
So it is possible that investments, although generally of a risky type, will increase of value over time. After weeks of volatility, due to fears of a new global commercial war, investors seem to have breathed a sigh of relief. But after this sudden rise, it’s really a Good time for equity markets?
Sudden rise in actions: premature optimism?
According to Michael Wilson, strategist of Morgan Stanley and authoritative voice among the Wall Street observers, the current rebound could only be an optical illusion. Wilson, in Bloomberg, explained that for a sustainable rise in the market American a more accommodating position is essential by the Federal Reserve and a drop in long -term bond returns (two factors, these, who have not yet materialized).
Despite the apparent dilling on duties, it is important to remember that Federal Reserve remains in an attempt, reiterating that a cutting of interest rates is not imminent. In the meantime, the performance of the ten -year Treasury (American bond securities) has risen, exceeding 4.4%. And this is a crucial point.
Now, when the yields of government bonds go up, the actions become automatically less attractive for many investors. Why? Because government bonds, such as American Treasury, are considered “safe” investments: they offer a guaranteed return without risk of insolvency. If the performance of these tools increases, investors can obtain an interesting profit simply by parking money in bonds, without exposing themselves to the volatility of the share market.
In this scenario, who chooses to invest in shares – an investment by its most risky nature – claims a greater “prize”, that is, a higher potential return to justify the risk taken. When this award is not high enough, this is the moment when the actions begin to lose appeal.
What do you risk? From the forecasts of Morgan Stanley It emerged that, if the threshold of 4.5%were exceeded, the equity markets could be exposed to a “compression of the multiples of price”: in practice, it is a situation in which investors they are no longer willing to pay High prices for each dollar of corporate profit. This can lead to a generalized descent of prices, even if the profits of the companies remain stable. In other words, the stock market becomes less attractivenot because companies go badly, but because there are safer and more profitable alternatives.
For this reason, according to the expert Wilson, a real sustainable recovery would require not only a complete and definitive commercial agreement, but also a strengthening of the predictions on profits. Until this will happen, Each rise risks being ephemeralbuilt on expectations rather than solid data.
What do investors really risk?
Those who invest today on the wave of enthusiasm could find themselves dearly to pay an excess of trust. The greatest risk It is to buy actions in a moment of generalized Euphoria, with inflated assessments and reduced safety margins. If the optimistic narrative is to crack-for example for a new stiffening of the US-China relationships, an acceleration of inflation, or a reduction in the discount of profits-the market could abruptly reverse the route.
Long -term investors must therefore maintain lucidity. It is not a question of abandoning the market, but of moving with greater prudencefavoring the selection of securities with solid fundamentals, visibility on useful profits and budgets. It is also the time to balance the wallets, possibly re -abing the exhibition on less volatile assets such as bonds or defensive securities.
The message of the cautious analysts is in fact clear: the apparent calm of the markets must not deceive. The rally observed in recent weeks has certainly benefited from the immediate post-tariff enlist relief, but the structural support of a more favorable monetary policy and the predictions of profits consistent with current assessments is still missing.
