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Thursday 02 February 2023
Global Investment Views, Equity, Fixed income
February 2023| Markets are shifting focus away from inflation towards growth, with a slightly less disruptive economic picture for Europe and a more optimistic view on China. Intra-market rotations also materialized, with cyclical stocks favored over defensive names in Europe and tech stocks in the US supported by expectations of a less aggressive US Federal Reserve. Going forward, four themes should be crucial: (1) inflation/growth balance; (2) central bank actions; (3) dollar weakening; and (4) the corporate earnings trajectory. Any negative growth and earnings surprise could drive markets lower while there are no short-term triggers for upside at current valuation levels.
01 | Amundi Institute Insights: We think headwinds for the eurozone economy persist, but we expect growth and inflation to prove resilient.
02 | Fixed Income: We keep our marginally cautious stance on fixed income duration (core Europe and Japan, neutral US) but are vigilant regarding inflation, monetary policy, and yield movement dynamics.
03 | Equity: The likely negative effects of the rising USD last year on Q1 and Q2 corporate earnings, combined with record levels of profit margins, lead us to be cautious on mega-cap names in the US.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of January 31, 2023. 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 US 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. 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 a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.
In addition to central banks' policies and inflation trends, we believe domestic politics and their impact on international relations will be important determinants of financial markets and economic direction. Our economic outlook is relatively robust, but valuations are tight in some areas of risk assets, allowing us to stay slightly positive on equities overall. However, we reduced our stance slightly in developed market equities and believe investors should consider building protection in some areas here. In bonds, we are constructive on US duration and core Europe, while we maintain our cautious stance on Japan. In corporate credit, EU investment grade is our favorite area.
In developed markets, we move to neutral from positive on Japan and we see scope for rebalancing in favor of the UK, European small caps and the US. While the US is displaying strong earnings, we believe Europe should benefit from the moderately resilient economic environment and rate cuts. In government bonds, we are positive on the US and core Europe, along with Italy. In credit, valuations in Euro investment grade appear attractive. We also look for selective opportunities across emerging markets and see oil as providing protection from geopolitical risks.
Recent inflation and growth data from the US indicates continued strength in the economy, leading Amundi and various institutions including the International Monetary Fund, to revise US growth forecasts upward. We believe current strong momentum will continue into Q2, but expect a deceleration in H2. Inflation data also points to stickier prices, with upside risks, especially around oil, from the recent geopolitical escalation, opening a difficult phase for central banks. We expect fewer rate cuts but higher uncertainty around policy actions.
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