Pimco warns of excessive stock valuations that have not been this high in nearly 25 years. The current assessment indicates that stocks, measured by the CAPE ratio, are rated in the 94th percentile. This means that US stocks have only been rated higher in 6% of cases since 1950.
Attractiveness of Bonds
The Equity Risk Premium, or the yield spread for stocks compared to risk-free government bonds, is currently at zero. This is unusual and suggests possible corrections. Pimco recommends leveraging high-quality bonds as a lucrative and stable alternative to stocks.
Political Influences
Due to geopolitical uncertainties and increased political influence on the economy, the attractiveness is shifting in favor of bonds. Traditionally, the economy dominated political decisions, but this trend seems to be reversing.
Pimco’s Recommendations
Investors should shift to high-quality bonds and minimize risks instead of chasing high-valued stocks. The possibility of a market correction due to geopolitical uncertainties and inflated valuations makes bonds a safer choice.