Pictet Group’s asset management arm awaits the S&P 500 to rise 10% from its current levels, with improving economic growth and easy monetary policy helping to extend its rally. Since October, the S&P 500 has risen around 21%.
Luca Paolini, chief strategist at Pictet Asset Management told Reuters, “There is a risk of a melt up in a way, in the U.S. especially, and you don’t want to stand against it.” But valuations were high at current levels, said Paolini, whose company manages more than $200 billion in assets.
Paolini said, U.S. bond yields may rise in the next three-to-six months due to an uptick in inflation expectations and possibly some preemptive Fed guidance on tapering its massive stimulus program. .He expected the 10-year treasury yield to end 2021 around 1.25%,currently it is at 1.14%. Paolini said global inflation levels are likely to remain low this year, but accelerate in 2022 when the global economy is expected to return to near-full potential.
But there was still a risk of rising inflation, which should be hedged with gold, some commodities and U.S. TIPS, or treasury inflation protected securities, he added. Paolini called high-yielding corporate bonds an “incredibly risky” investment in the context of U.S. junk bonds falling below 4% for the first time. Referring to making a good return in “junk Bonds”, Paolini said “you need to have … no rise in bond yields, no Fed taper, decline in default rates, a strong economy, and I think it is quite unlikely that you’re going to get all of that.” Paolini said there was not a strong case for bitcoin prices to rise in the long term, calling the meteoric rise of cryptocurrencies a side effect of a long period of monetary expansion.