The three ways to play defense
There are those who do not trust the stock market rally: the 43% gain achieved in just over six months by the 100 major technology stocks on the Nasdaq and the 18 points scored by the largest basket of American blue chips, the S&P500, seem out of tune with the trajectory of an economy that is inevitably slowing down. It is true that artificial intelligence represents an epochal paradigm shift and contributes, by itself, to explaining a good portion of this euphoric momentum. But the concrete impact on productivity and profits will be seen in the long run, which is difficult to measure today.
And meanwhile the monetary tightening of central banks is advancing. It starts to hurt. Even the largest manager in the world, BlackRock, thinks so when he declares a tactical underweight on the US stock market, on a 6-12 month horizon, in the belief that earnings expectations do not reflect the macro damage we expect. Two weeks ago, the investment chief of the largest global bond fund, Pimco, also told al Financial Times: I'm preparing for a harder landing than the economy. In short, the enthusiasm for better-than-expected US inflation data could fade, especially if the numbers on employment and consumption show significant signs of abating or inflation were to rear its head again.
So what to do? If you want to play defense, there are three ways: focus on short-term government bonds. Buy some gold, to diversify and protect yourself from extreme scenarios. Or park some cash in a high-yield deposit account.
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Jul 24, 2023
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