Stock Valuations at Historic Highs
Pimco, a leading bond house, has recently warned about the high valuations of stocks. They are as expensive as they have been for about 25 years. Currently, stock valuations are at levels last seen nearly three decades ago. This suggests that the risk premium for stocks compared to bonds is very low. Investors are no longer being adequately compensated for the risk they take with stocks.
Risk Premium
It has been noted that the risk premium for US stocks is unusually low in historical comparison. This could point to a potential correction in the stock markets or a rally in the bond markets.
Attractiveness of Bonds
Pimco sees high-quality bonds as a more attractive investment option. Investors should align their portfolios with high-quality bonds, as these currently offer attractive yield opportunities, especially compared to the high stock valuations.
Political Influences
The increasing dominance of political decisions over economic developments, particularly in the US, could further enhance the attractiveness of bonds.
Recommendations and Outlook
It is recommended to take advantage of the yield advantage of high-quality bonds rather than chasing stocks at high valuations. Despite positive market developments, uncertainties remain that could lead to a correction in the stock markets and increased attractiveness of bonds.