The large momentum of the US market continues. The data show that the US economy is still far from a recession. The numbers on the labor market continue to surprise positively, and the revenue deriving from duties are compensating for an otherwise negative picture for public federal finances. “The content yields of the Treasury and the absence of a significant bearish pressure – explains Chris Iggo, Chief Investment Officer of Axa im core – have fueled the race of risky assets, with the US equity that has again surrepened the European one. Despite the high share evaluations and a prize for increasingly small risk, the sentiment remains positive, also driven by the patriotic narrative and from renewed enthusiasm for artificial intelligence “.
However, – according to Iggo’s analysis on the outlook for the stock and bond market – the picture is not without unknowns: “A recession, albeit still far away, remains a risk not to be underestimated, especially if the growth of income should slow down. In a context in which the path of lesser resistance continues to bring towards the equity, many investors begin to look with greater attention to asset class less exposed to volatility to the fundamentals “.
Attention for short -term liners
It is still difficult to have strong beliefs. The US equity market seems in a huge “Momentum Trade”, supported by the “Buy-The-Dip” sentiment and persistent enthusiasm for artificial intelligence. Outside the stock market, short-lived inflation -lin titles-read in the analysis-were one of the asset class with the best correct returns for risk in recent years. The beauty of these bonds is that they benefit from inflation Indicization, linked to an index of consumer price index, despite having a limited sensitivity to rates volatility. If inflation increases, inflation-bookd titles will benefit from it. If the growth slows down and the Fed cuts the rates before or to a greater extent than expected, the impact will be positive thanks to the drop in nominal rates and the reduction of the break-even of inflation.
Resulient flows in the High Yield
Among the most risky assets, – notes Iggo – a combination of actions and High Yield allows you to intercept the still positive dynamics of cash flows. Global High Yield has recorded high performances, and the fundamentals and market dynamics of the segment continue to support positive returns: they are not expected to be large changes shortly. If there is a recession in the United States, it will be more likely determined by the application than by the company budgets. The US companies will also benefit from some tax provisions foreseen in the new budget package.
“Barbell” strategy
Investors have different risk profiles and horizons. Total Return indices of short-term inflation -lin titles and global high yield are found on record levels, as well as US Growth titles. The bond tools offer more predictable performance characteristics, linked to the inflation accrued, to rates and credit, supported by solid corporate fundamental. Shareholders, on the other hand, – continues Iggo – are much more exposed to the variations of expectations, in particular on how long an exceptional growth of revenues can be supported. There is no doubt that artificial intelligence has the potential to transform many sectors and that companies are investing billions to integrate it into their operating models, with the aim of increasing productivity and profits. The real question is if it makes sense to invest now in these price levels. The share risk prize on US actions is extremely reduced, but the growth prospects for profits in the technological sector compensate. In this context, a structured core wallet according to a “Barbell” approach – which combines long -lasting equity growth and short -term bonds with predictable cash flows – remains an interesting option.
