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Expert: Don’t Chase Stock and Bond Rally

Expert: Don’t Chase Stock and Bond Rally

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Investors shouldn’t chase recent stock and bond rallies considering the current economic uncertainty according to Francois Savary, chief investment officer at Swiss asset manager Prime Partners. He told CNBC in an interview that factors like the Ukraine war and pandemic recovery are making it very hard to have clear economic visibility.

Savary told CNBC’s “Street Signs Europe:”

One of the key factors that supported the rally, which was a strong bond market during the month of July, has disappeared to a certain extent. We all know it’s very difficult to make money on the bonds side. I would not chase the bond rally that we experienced over the last two months.

Analysts’ expected revision of third-quarter earnings forecasts is a key issue despite a (so far) solid second-quarter earnings season. Savary warned investors not to chase the rally in equities. While the S&P 500 has gained more than 12% from July, it’s still down since the beginning of 2022.

US 10-year Treasury yield slipped

Government, corporate, and high-yield bond funds saw significant inflows in July. The US 10-year Treasury yield dropped to around 2.76% today after peaking at 3.48% in the middle of June.

The risks

Global market investors are struggling with central bank tightening, recession risk, and inflationary pressure. Even titans like SoftBank and Warren Buffett’s Berkshire Hathaway posted investment losses in the second quarter.

According to the expert, holding some stock investments is a partial hedge from inflation. However, investors have to be careful and consider the most recent economic data. Cash is useful as a source of flexibility.

The market has priced recession in

Savary believes the market has factored a recession in. He clarified:

The numbers are not telling you that there is a recession, so we need to be nimble and to check what is happening week-by-week and month-by-month, and we should have more visibility by the early fall, in the US in particular.

US GDP dropped in Q1 and Q2

The US gross domestic product declined during the first two quarters of 2022, which meets the general definition of a recession. However, the government insists the country is not currently in recession.

Inflation data due to be published tomorrow will provide further clues on what condition the world’s largest economy is in.