The yield gap between bonds and stocks has begun to widen again.
The danger of a recession makes debt securities a safer investment, according to strategists at JPMorgan Chase Co. and Morgan Stanley, whereas the stock market has not yet evaluated these risks.
This is predicated on the idea that bonds with strong credit ratings will be better equipped to withstand any economic slowdown, but equities will suffer more if the Fed starts hiking interest rates.
Global stock valuations are higher than the 12-month average.
Bond purchases provide investors with additional returns, and if interest rates decrease, they may also benefit from capital gains.
Global equities’ annualized returns have fallen to roughly 7% from investment-grade debt’s 3.3%, and their stock values are still higher than the 12-month average, which makes them expensive for certain investors.
“Multiples could contract at a time when profits start to fall, and this is a very dangerous situation,” said Lisa Shalette, a pebbly Morgan Stanley investment director. “Stock investors have to come to terms with the fact that multiples could shrink.”