As US bond yields near levels that could redirect investors from stocks to bonds, Europe’s largest asset manager, Amundi SA, is signaling caution on US equities.
Vincent Mortier, Amundi’s Chief Investment Officer, believes the “alert level” for 10-year Treasury yields is 5% — a rate that could become attainable due to inflationary pressures from President Donald Trump’s economic policies. These policies, including proposed tax cuts and tariffs, are expected to stimulate growth but could also drive inflation higher.
Following Trump’s recent election victory, yields on 10-year US Treasuries surged, reaching a high of 4.48% before retreating to about 4.33% after the Federal Reserve lowered its benchmark rate by a quarter percentage point. This uptick in yields is drawing increased interest in bonds and potentially shifting investment priorities for some major asset managers, particularly as the Fed remains cautious on rate trajectory in the face of Trump’s economic agenda.
According to Mortier, the potential rise in bond yields may create a tipping point where bonds could become more attractive than stocks, particularly as yields approach the anticipated 5% threshold. This possibility has led Amundi to consider taking profits from US equities, even though US stock futures held steady Friday after the S&P 500 closed at a record high. Investor optimism continues to be fueled by the anticipation of tax reforms and deregulation that could benefit corporate earnings.
Some strategists, however, are urging caution. They note that while Trump’s policies may accelerate growth, they could also spark inflation, which may prompt the Fed to slow future rate cuts. Amundi’s caution is echoed by other financial institutions. Goldman Sachs recently highlighted that the U.S. stock market, already trading at historically high valuations, could see slower performance as inflationary pressures mount.
Despite these concerns, the initial post-election rally was substantial, with the S&P 500 and Nasdaq setting new highs as “Trump trades” surged on optimism for his economic platform. However, the high demand for stocks has pushed the US equity-risk premium — the extra return stocks provide over bonds — to its lowest level in over two decades, making stocks objectively less attractive compared to bonds.
Bloomberg and the Financial Times contributed to this report.
