"These are the stocks with the greatest long-term prospects.
Visa, Apple and Asml are the companies that the expert considers more interesting than others at this stage of the market
3' min read
Key points
- The geopolitical situation has long been an important variable for market dynamics, but how much of it is already incorporated into prices?
- In this scenario where the focus is very much on Europe and the US, how do emerging markets fit in? What are the drivers that will determine their performance?
- The companies you find most interesting?
3' min read
In the coming months there will be a lot of volatility in the stock market, but there are nevertheless sectors such as technology that remain attractive opportunities in the long term. This is explained in detail by Andrea Delitala, Head of Euro Multi Assets at Pictet Am. The company is part of the Pictet Group which was founded in Geneva in 1805 and manages EUR 705 billion
The geopolitical situation has been an important variable for market dynamics for some time now, but how much of it is already incorporated into prices?
Financial markets price the risk of a jump in the current conflicts very marginally: equity risk premiums, i.e. the differential between expected returns on stocks and bonds, are at their lowest level since the post-bubble years of 2000 (at least in the US). The American elections are a different matter.
The assassination attempt on Trump and Biden's withdrawal add another layer of uncertainty. How do you think these events could change the scenario and with what implications for the market?
Market behaviour after Trump's soaring odds signal a preference for small caps in equities and a strong dollar as a result of the well-publicised programme of corporate tax cuts, deregulation and tariffs. The most vulnerable asset class could be long-term government bonds, both because of the lack of attention to fiscal discipline in the face of an unsustainable public debt trajectory, and because of the inflationary impact of Trump's prescriptions: not only because of tariffs but also because of the hostile attitude towards immigration that has contributed in recent years to the rebalancing of labour supply and demand and thus to wage moderation. Biden's renunciation reopens the competition, but it is not certain that it will allow the Democrats to avoid a defeat in the presidential elections and even in Congress; in which case, Trump's economic policies would find a green light even in a more radical form. Much will depend on the candidacy of the new challenger at the next Dem convention. Increased market volatility due to fluctuating Trump trades is likely, depending on polling trends leading up to the 5 November elections.
Do you think there might be a change of course in Fed and ECB policy, or can monetary policy training be a reasonable certainty?
We think an easing is likely regardless of the political factors already mentioned, but it is safe to assume that the net effects of Trump-nomics are inflationary and may lead the Fed to slow down or end its rate-cutting cycle early (indirectly constraining other central banks, including the ECB). As of today, the market expects terminal rates, over the next three years, of around 3.5% for Fed Funds and 2.5% for European rates, levels that we believe are acceptable, if isolationist policies are excluded.
In this scenario where the focus is very much on Europe and the US, where do emerging markets stand? What are the drivers that will determine their performance?
Emerging markets are under pressure from the strength of the dollar and the unfavourable growth differential with respect to developed economies, penalised by the weakness of the Chinese market. It will take at least a few more quarters to reverse these trends.
