The recent rally in both equities and bonds suggests that these two narratives are seemingly incompatible.
The stock market has rallied on the back of rates cuts by the Federal Reserve while the bond rally is signaling concerns about a lasting economic downturn, said Credit Suisse's chief equity derivatives strategist, Mandy Xu.
«We’ve seen interest in playing a convergence of views, with equities lower and rates higher,» said Xu, who was quoted in «Bloomberg» (behind paywall). The S&P 500 has gained 19 percent year-to-date thanks to expectations of Fed rate cuts, still-solid corporate earnings. In the same period, ten-year U.S. treasury yields have dropped more than 60 basis points as inflation expectations faded and slowing global growth dominated headlines.
Look for Growth
Credit Suisse has reduced the level of risk in its investment strategy in light of trade-related uncertainties, especially in emerging market equities. It continues to prefer the more defensive and highly diversified U.S. market.
«In fixed income, government bond valuations seem stretched after yields have fallen close to historical lows. Yet EM hard currency bonds look attractive and should benefit from a dovish Fed,» says Credit Suisse International Wealth Management CIO Nannette Hechler-Fayd'herbe.
