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Pictet Asset Management Chief Strategist Luca Paolini shares his insights as to whether investors should be leaning heavier into bonds (^TYX, ^TNX, ^FVX) or equities (^DJI, ^IXIC, ^GSPC).
"When you look at valuation alone, there is a clear and strong case for bonds now," Paolini explains, adding "unless you expect something really terrible to happen on the inflation side or a significant acceleration in growth, the current level of bond yields is very attractive."
On investment opportunities, Paolini highlights European bonds, noting that the European Central Bank (ECB) is likely to cut interest rates more rapidly than the Federal Reserve while inflation remains under control. He believes "there is more value in Europe than the US when you look at the bond market." Additionally, he recommends emerging market bonds, explaining that the US dollar (DX=F, DX-Y.NYB) is approaching a secular peak.
"We want to be exposed to emerging market debt as well," he adds
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Addressing the broader equity market, Paolini maintains it should "outperform in the next few months, but I think the case for equities is more difficult," noting that investors tend to be overweight in this sector. He expresses concern about profit margins, stating "I don't see how margins can expand from current levels."
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This post was written by Angel Smith