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Friday 05 January 2024
Global Investment Views, Equity, Fixed income
January 2024 | The rapid retreat in fixed income yields caused by falling inflation and dovish central banks has affected valuations, but bonds are still a good diversifier as we enter a slowdown. However, we may see some uptick in yields (owing to inflation). The recent equities rally is largely based on easing financial conditions and expectations of a soft or no landing next year. There is a disconnect between valuations in some segments and their earnings potential, which raises risks of deratings.
01 | Inflation is declining, but it's too soon to declare victory; US core inflation is displaying stickiness.
02 | US and Europe are weakening; Labor markets are loosening, and consumers' views of worsening job security adds to our forecasts of a mild US recession in H1.
03 | Currently, markets are ignoring the long-term US debt sustainability issues and are driven by the Fed policy outlook.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of January 1, 2024 . Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the [author] and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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The strength in the US economy keeps us confident that the Federal Reserve will not begin policy cuts before the end of May, and the European Central Bank will also remain vigilant on disinflation. Sluggish growth expectations going forward mean the emphasis on quality credit and valuations will likely increase. Equities markets are continuing to display acute anomalies relative to the historical norm, with high valuation dispersion between growth and value and an extraordinary concentration in the largest securities. We are prioritizing fundamentals, and exploring strong businesses in Japan and US value sectors.
The past month saw a recovery in risk assets on the back of continuing disinflation and indications that the Fed is close to peak rates, leading US and European yields to retreat. We aim to balance our long-term convictions (for example, positive on duration) with tactical opportunities across asset classes and strengthening of hedges. Hence, we keep a cautious stance on developed market equities, but we acknowledge potential for a marginal upside.
Economic deceleration and ambiguity over monetary policy are collectively increasing complexity across markets. This is not a time to take bold risks; instead, we believe investors should stick to their long-term convictions around duration in the US and Europe. In addition, current uncertainty on US inflation strengthens the case for enhancing safeguards. We believe oil offers additional protection and diversification from the recent increase in geopolitical risks.
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