2. April 2024

New Normal or New Bubble?

In Kürze

Hard landing fears no more. As 1Q24 ends, the hard landing fears are gone. Investors are hesitating between a ‘soft landing’ and ‘no landing’. Q1 indeed has been dominated by ongoing equity price gains, even as investors scaled back 2024 rate cut hopes and long yields backed up a bit. This has come in sharp contrast with the last 5 months of 2023 (positive stock-bond price correlation) and speaks of rising confidence about the economic outlook.

Highlights:

Hard landing fears are gone. Rising confidence about future economic prospects are helping global risk assets to charge ahead, even as rate cut expectations are being scaled back.
Global markets may be frothy, but do not look exuberant. While both concepts are hazardous, the current market pricing may reflect a ‘new normal’ rather than a financial ‘bubble’. Elevated public debt, permanent Central Bank puts, the reality of a considerable inflation shock (since 2022), and a larger debasement risk may support inflation as-sets, and lower risk premia vs. so-called ‘risk-free’ assets.
Still, the collapse of risk premia across markets contrasts with persistent policy and geopolitical risks. A Trump 2.0 scenario may challenge both the policy rate cut consensus, and the geopolitical order.
The pricing for near perfection, in this uncertain context, leaves our positions in stocks and High Yield as neutral. We keep a selective preference for cyclicals, small cap, and EM equity markets. We find risk asset volatility too low and recom-mend using it to either surf the bullish wave optionally or protect against unexpected shocks. We seize the back-up in yields to go moderately long duration and retain a large overweight in IG credit – the new ‘haven’.

Download the full publication below

Investment View | New Normal or New Bubble?

2. April 2024

Investment View in pictures:

Investment View in pictures I New Normal or New Bubble?

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Sectoral views on Equities and Credit and lays out why the AI-based tech rally is not (yet) a bubble.

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