Risk premia erosion

In Short

Confidence is growing that the Fed will manage a soft landing of the US economy. We now expect a shallower slowdown over mid-year and have raised our 2024 forecast to an above-consensus 2.1% as the boost from continued disinflation and solid wage growth will largely offset the drag on consumption from depleted excess savings.

Highlights:

  • “Immaculate disinflation” is getting increasingly consensual and brightening the 2024 market outlook, leading to a further erosion in risk premia. 
  • We expect a bumpier road near term. Rate cut expectations are flattening out. 2H23 US economic strength has likely caused complacency about actual risks, helping risk assets to perform positively again in January even as long-term yields backed up a bit. 
  • Stagflationary geopolitical risks in the Middle East may challenge then increasingly consensual Goldilocks (continued disinflation, resilient growth). Even with a soft landing more likely, we see limited value in extending risk taking right now – we prefer safer (IG) buckets in Fixed Income and tactically raise Cash exposure. 

     

Download the full publication below

Risk premia erosion
Picture

© Generali Investments, all rights reserved. This website is provided by Generali Investments Holding S.p.A. as the holding company of the main asset management companies of the Generali Group having, directly or indirectly, the majority shareholding in the companies listed below (hereinafter jointly, “Generali Investments”). This website may contain information related to the activity of the following companies: Generali Asset Management S.p.A. Società di gestione del risparmio, Infranity, Sycomore Asset Management, Aperture Investors LLC (including Aperture Investors UK Ltd), Plenisfer Investments S.p.A. Società di gestione del risparmio, Lumyna Investments Limited, Sosteneo S.p.A. Società di gestione del risparmio, Generali Real Estate S.p.A. Società di gestione del risparmio, Conning* and among its subsidiaries Global Evolution Asset Management A/S - including Global Evolution USA, LLC and Global Evolution Fund Management Singapore Pte. Ltd - Octagon Credit Investors, LLC, Pearlmark Real Estate, LLC as well as Generali Investments CEE. *Includes Conning, Inc., Conning Asset Management Limited, Conning Asia Pacific Limited, Conning Investment Products, Inc., Goodwin Capital Advisers, Inc. (collectively, “Conning”).