Stock valuations at record high
According to Pimco, stocks are currently valued as high as they have been in about 25 years. This means that the risk premium for stocks is at a historical low. Investors are hardly receiving an appropriate return for the additional risk of stocks compared to bonds. This development is concerning for investors as it indicates a potential risk of overvaluation.
Bonds as an attractive alternative
Pimco sees high-quality government bonds as increasingly attractive. These bonds offer better return opportunities than before, which is why a shift of portfolios towards high-quality bonds is recommended. Political factors, especially in the US, strongly influence economic development and alter traditional relationships.
Politics driving the markets
The change in the world order is cited as a central factor: Politics now leads the economy. Against this backdrop, investors should take advantage of the yield advantage of high-quality bonds and stay away from overpriced stocks.
Recommendations for investors
- Stocks are expensive with low risk premium.
- High-quality government bonds offer attractive returns.
- Shifting portfolios in favor of bonds is recommended.
- Political factors increase uncertainties in stocks.
These assessments underscore an environment with increased risks for stock investors and simultaneously good opportunities in high-quality fixed-income securities.