The Fundamentals Are Positive, But Mostly Discounted – April 5, 2021

We updated our multi-asset recommendations in a just-published report, and noted that the global stock/bond ratio was extremely overbought and thus signalling increasing risk of a near-term correction or consolidation phase. Nevertheless, underlying economic fundamentals remain quite positive. Bond yields will move higher over time as the economic recovery solidifies, while equities will be supported by rising earnings expectations.

However, the report also reiterated that the capital market cycle was becoming well advanced (especially relative to the economic cycle), and future equity returns will be positive but likely historically subpar. Prospects for credit were even less appealing: corporate bonds will still outperform government paper, but absolute returns will be poor (most likely negative) because spreads over government bond yields were already historically tight.


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