Autheurs
In the last couple of years, we've been positive on US equities because we expected a soft landing in the US. To some extent, my mantra was, "Don't overthink it." And as long as nominal growth was positive, you could be positive on equity prices.
We're still overweight equities now as we start 2025, but I would highlight that there are two key risks you should be watching very carefully.
Firstly, is the level of bond yields. We're seeing very profligate fiscal policies around the world but also in the United States, and that is okay in the sense that it boosts growth. So, keep an eye on those yields. If they start rising, if the US 10-year Treasury yield goes towards 5%, I think we're going to start having a valuation problem with equities.
The second key risk to watch is the concentration of the index. With such a high weight from the Magnificent Seven, we're at a point where a passive exposure is no longer passive. There's very significant stock-specific risk because of the weight of those stocks in the index.
So, if you're going to be exposed to US equities, make sure that you have an active approach where positions are being taken deliberately in these stocks, based on fundamental research and not just because they're in the index.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Autheurs
Topics