Stock Valuations at Historical Highs
Pimco, a renowned bond house, draws attention to the currently exorbitantly high valuations of stocks. According to Pimco’s analyses, the valuations are at their highest in 25 years. A potentially overvalued market could be on the brink of a correction.
The risk premium, that is, the additional return compared to risk-free government bonds, has fallen to zero, according to Pimco. This is a rare phenomenon that often signals a market-wide correction. Furthermore, the cyclically adjusted price-to-earnings ratio (CAPE) indicates that US stocks have been higher valued only about 6% of the time since 1950.
Bonds as an Attractive Alternative
While stock valuations soar to dizzying heights, Pimco sees high-quality bonds as an attractive investment opportunity. The current bond yields are considered relatively appealing, especially compared to the overvalued stock markets.
Stability and Safety
Bonds not only offer attractive returns but are also viewed as stable and less risky. In times of volatile markets, they prove to be a solid investment option.
Recommendations for Investors
Given these factors, Pimco advises investors to shift their portfolios in favor of high-quality bonds. This strategy is suggested in response to increasing geopolitical tensions and political influences on economic developments.
Pimco emphasizes the growing role of political decisions that increasingly shape the economic landscape and calls for a realignment of the traditional interaction between politics and economics.