Contrarian investing strategies 2022 electoral votes
Time to start slowly raising risk exposure, in Credit: the sharp repricing in credit markets has been dramatic, with average US investment grade IG credit yields soaring from 1. US IG credit today offers more than 2. In our view, this is an attractive entry point for investors looking to lock in high income yields.
Waiting for the green light on stocks: an important condition for stocks is extreme investor pessimism a reliable contrarian indicator. This pessimism is also evident in heavy investor buying of put options to hedge stock market downside. But, this by itself is not enough for us to raise our recommendation on stocks.
We also require improvement in three key indicators — financial conditions looser, including liquidity, volatility and interest rate spreads , long-term real bond yields lower , and the US dollar weaker. There are preliminary signs of some improvement in all three. But it is too early to be confident in these potential changes of trend. Investment Conclusion Our preferred first move in increasing risk exposure in balanced investment portfolios is via an upgrade in the credit asset class to Positive.
We await confirmation of improvement in financial conditions, real yields and a weaker US dollar before upgrading our recommendation on equities from neutral The Macro Picture Is there too much global macro gloom? Remember to look in front, not always in the rear-view macro mirror.
It is often better for our well-being not to read or listen to the daily news. We risk being upset by the constant stream of bad news. Remember that depressing news tends to sell better than good news. Economists are especially prone to making the mistake of focusing too much at reported economic data, which tell them what has happened in the past, rather than look to the future. The biggest mistake someone can make is extrapolating past trends too far into the future.
If energy prices can return closer to pre-February levels over the next few weeks, this would release some cost pressure on households and businesses, representing positive news for the European economy. Rather than deteriorating, the economic situation seems to be improving Stateside.
US 1-year inflation expectations continue to fall: financial markets continue to price US inflation in 1 year at lower rates, now somewhere between 1. This would be a welcome relief for markets. Investment Conclusion The low point in eurozone economic momentum was reached at end-July. Much still depends on the future direction of energy prices. This will determine how much energy costs hurt the economy during the winter.
We are closely watching US economic momentum to see if the latest improvement can be sustained. Finally, we await the mid-October Chinese Communist Party Congress for any new pro-growth Chinese government policies. Bond And Credit Reappearance of the bond vigilantes Unchanged narrative: bond markets are currently driven by inflation and the forceful response of central banks.
Interest rate volatility has exceeded levels seen during the pandemic. An aggressive Fed: the rise in August inflation data was a blow, and policymakers have complained that the labour market has not slowed enough. This justifies further significant increases in policy rates. We have raised our terminal rate to 4. We have raised our expected terminal rate to 2. We expect the rate cycle to end in March Long-term rates should peak soon: higher rates in the very short term are possible, boosted by central bank rhetoric and potentially higher-than-expected inflation.
Historically, Treasury and Bund yields have peaked months before the latest rate hike. On a month horizon, we expect the year Treasury yield to drop to 3. The current level of spreads implies that a mild recession is already priced in.
Cross-asset metrics favour Investment Grade bonds over High Yield bonds. Euro-based investors can find some decent yields in EUR short-term IG corporate bonds of quality issuers A-rated bonds with a 3—5-year maturity offer a 3. We expect long-term rates to peak soon.
Our month targets are 3. Euro-based investors can find some decent yields in short-term EUR IG corporate bonds of quality issuers. Equities Outlook Hitting bottom, or about to go even lower? Please enter a platform How big is your investment portfolio? Please choose an option Which investment trust s are you a director for? The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person being residents of the United States or partnerships or corporations organised under the laws thereof.
The investment funds referred to herein have not been registered in the United States under the Investment Company Act of and units or shares of such funds are not registered in the United States under the Securities Act of Please confirm Receive a weekly summary of the latest research Please select an option.
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