Why optimism on equities is premature

EQUITIES

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Luca Paolini, chief strategist at Pictet Asset Management, examines the risks to the asset class.

Despite the equity market’s recent rally, the upside for stocks is limited in the short term – even if economic conditions appear to be improving. That is because stronger growth would inevitably lead the Fed into scaling back its asset purchase programme (we still believe ‘tapering’ will start by December at the latest), removing the main support for risk assets. Conversely, a slowdown in growth would trigger further corporate earnings downgrades, which would also weigh on stocks. Equities should, therefore, trade in a range until the end of the summer. Although growth appears to be ...

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