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Pictet’s advice to investors: less stock and more liquidity

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Prudence. a lot of prudence. That is the advice that the Swiss asset manager transmits to investors Pictet in the market vision that was published in the month of September.

As noted Luca Paulini, chief strategist at Pictet AM, “The stock market rally with falling oil prices this summer gave hope that the Federal Reserve engineered a soft landing. But inflation, although it has reached maximums, is persistent. For now, our indicators point to more inflation surprises and a sustained loss of growth«.

For this reason, Pictet has cut the world GDP growth forecast this year to 2.5% and 1.6% in the US, although he anticipates that both the euro area and the US will narrowly avoid recession in the coming quarters. «At the moment, sales in the US remain resilient, unemployment is at a 50-year low and residential investment as a percentage of GDP is at its highest since the Great Global Financial Crisis,» says Paolini.

«But the polls are bleaker and valuation and sentiment indicators no longer provide conviction for riskier assets«, Add.

In this state of affairs, Pictet advises underweight equities Y be bond neutralwhile recommend favoring liquidity.

To be more positive, manager would need a steeper yield curve to maturity of the US debt, that there would be strong future economic growth; End of downward earnings forecasts business and economic indicators and unmistakable signs of «overselling», especially cyclical stocks. Furthermore, in terms of bonds, the tightening cycle needs to be sufficient for inflation to return to central bank targets.

ANALYSIS OF WALL STREET AND EUROPE

For Pictet, Wall Street is by far the most expensive equity market and is likely to see earnings forecast deterioration. According to his analysis, for these stocks to generate positive returns over the next 12 months, real GDP growth must be twice as high as forecast, the yield on their inflation-linked bonds must fall to 0%, or a combination of the two.

For your part Europe is on the verge of a recession, largely due to the effects of the Ukraine war on gas prices and energy supplies.. Fundamentals call for more aggressive monetary tightening and markets are already pricing in an adjustment, including lower asset purchases equivalent to a 1.35% interest rate hike for the rest of the year.

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