Currently, Pimco warns that stocks are valued as high as they haven’t been for about 25 years. The valuation of stocks relative to bonds has reached a historically high level last observed in the late 1990s.
The Current Market Situation
In particular, the risk premium for US stocks has reportedly fallen to zero. This means that investors no longer receive any additional return for the higher risk of stocks compared to risk-free government bonds. This rare phenomenon has often been associated with subsequent market corrections in the past.
Strategic Adjustment of Portfolios
Pimco therefore recommends reallocating portfolios towards high-quality bonds. These currently offer attractive yield opportunities, especially high-quality government bonds. The recommendation is also based on geopolitical uncertainties and the increasing influence of political factors on economic development – especially in the U.S. under the current political leadership. Pimco’s global economic advisors emphasize that the traditional world order has changed: politics increasingly determines economic development.
In Summary:
- Stock valuations are as high as they were 25 years ago.
- The equity risk premium for stocks compared to safe bonds is at zero.
- High-quality government bonds currently offer attractive returns.
- Geopolitical and political factors are increasing uncertainty in the markets.
- Pimco advises investors to focus more on high-quality bonds rather than continuing to pay high valuations for stocks.
This assessment signals a cautious stance towards the current stock market and sees fixed-income securities as a better investment alternative in the current environment.