Current Valuation of Stock Markets
Pimco, a leading bond house, has recently warned about the high valuations in the stock markets. According to Pimco, stocks are currently as expensive as they have been in about 25 years. This historical valuation raises questions about the sustainability of the current market prices.
Historical Valuations
The valuations are as high as they were about 25 years ago, indicating a possible overheating of the markets.
Risk Premium and CAPE Ratio
The Equity Risk Premium (ERP) is currently at zero, a rare phenomenon that often precedes market adjustments. Additionally, the CAPE ratio is in the 94th percentile, meaning that US stocks have rarely been valued higher historically.
High-Quality Bonds as an Attractive Alternative
In response to the high stock valuations, Pimco considers high-quality bonds to be a worthwhile alternative. They offer better return prospects compared to the currently overvalued stocks.
Attractiveness and Stability
Pimco recommends that investors adjust their portfolios to focus more on high-quality bonds. These are considered more stable and provide protection during turbulent market phases.
Influence of Political and Geopolitical Factors
Political decisions are increasingly impacting economic development, which requires an adjustment of investment strategies. Pimco points out that geopolitical uncertainties and the dominance of political decisions are forcing investors to consider safer investment options.
In conclusion, Pimco warns of a potential correction in the stock markets and advises diversification through high-quality bonds.