Pimco, a leading bond house, is currently warning about high stock valuations and instead recommends high-quality bonds. This warning is based on observations regarding the current market conditions and economic developments.
Stock Valuations
According to Pimco, stocks are as highly valued as they have been in the last 25 years. These historical valuations indicate a possible overheating of the markets. An alarming sign is the Equity Risk Premium (ERP), which currently stands at zero, a phenomenon that often precedes correction phases. Additionally, the CAPE ratio is in the 94th percentile, meaning US stocks have only been valued higher in 6% of the cases since 1950.
Bonds as an Alternative
Pimco sees high-quality bonds as an attractive alternative to stocks. These offer better return opportunities, especially in light of geopolitical upheavals and politically driven economic developments. Investors should take advantage of the yield advantage of these bonds to protect themselves from the risks of overvalued stocks.
Economic and Political Influences
Political decisions are increasingly dominating the economic landscape, particularly in the USA. This development makes it important for investors to strategically adjust their portfolios. Pimco emphasizes that geopolitical upheavals and the increasing dominance of politics over economics underline the necessity for a strategic realignment.
In summary, Pimco warns of a possible market correction due to high stock valuations and recommends high-quality bonds as a strategic alternative.