Do equities and bonds live on different planets?

bonds and equities

There is much talk about the Fed’s interest rates hike, but in fact it seems that they won’t take place before 12 months. Meanwhile the ECB seems to be willing to boost stimulus, and Japan is likely to do the same.

“The market considering a few good numbers of global corporate profits (especially in the US) in an environment of yields downside bonds and risk premiums, more than poor GDP growth,” analysts at JPMorgan explained.

As the same experts noted, this trend of bonds and equities rising cannot go on forever, and it will possibly end up when the Fed begins to raise rates (possibly at a higher speed of which deducts the market). The start of the interest rates hike after six years of 0% rates rate policy by the most important Central Bank in the world could easily destabilize the markets.

But the big test will be if the American economy can prove that it is able to grow above 2% of a steadily over the next year and a half (something that only been in a handful of quarters in the last 6 years).

“Each of these last years the market hoped that both the US and the world could register more than a 3% growth but these estimates then had to be revised downward as the year progressed. And this year is not different. There is not a clear consensus about why expectations of solid growth (cyclical or structural?) have been missed, but we all agree on that part is due to the process of global deleveraging and a more cautious behavior after the financial crisis,” say JPMorgan sources.

Their economists speak of how the growth potential trend in the world has fallen for this cycle, but anyway, they believe that the growth of US and the world should exceed 3% over the next year and a half, accompanied by a movement of gradual rate rise by the Fed as inflation levels are increasing.

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