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CIO View: Autumn Market Malaise

Perspectives» |

October 30, 2018

Read the latest views from Pascal Blanqué, Group Chief Investment Officer, Amundi, and Vincent Mortier, Deputy Group Chief Investment Officer, Amundi, on market volitility.

The late cycle narrative behind the autumn market malaise

The start of autumn marked a change in market dynamics. Volatility is up across the board, the US 10-year yield is flirting with its highest level over the last seven years following a rapid rise; equity markets are under pressure. After a period of highly divergent forecasts, markets are starting to price in a synchronised slowdown in global growth, and, hence, the fact that the peak in earnings acceleration is progressively shifting to being behind us. Some ongoing dislocations are accompanying this new situation. Cumulative hikes in interest rates in the US, while limited in absolute terms, have been sufficient to trigger the early stages of a risk-off positioning in emerging markets which have recently been negatively affected by idiosyncratic stories (Turkey, Argentina) with weak fundamentals. The risk-off sentiment has been further exacerbated by the Italian budget situation, while the most recent risk-off moves have also broadened their effects to the US in the tech area, which is very stretched in terms of valuations. 


Implications related to trade disputes are also a feature of this new narrative. Protectionism is a lose/lose game: no economy will be exempted from paying its bill in the end. So far, the deterioration has been more visible in a deceleration of global trade growth and in economies with limited fiscal support, primarily in the Eurozone and China. Regarding the latter, policy actions (both fiscal and monetary) are too recent to have affected GDP growth figures. The potential impact on the US has so far been hidden behind the fiscal policy boost, but we may start to see the unintended effects of protectionism as we enter the Q3 earnings season. Possible downward earnings revisions due to tariffs, coupled with some wage pressure, could be a dangerous cocktail in a late cycle phase. If protectionism becomes structural and goes beyond being an electoral trick, it could become a risk. In our view, the impact will be more on the growth outlook and should lead central banks to lean to the accommodative side.

While this new narrative will continue to drive volatility higher, we believe that it is premature to call it a bear market. In our view, the configuration that is opening up has more to do with a correction than a full reversion to a bear market trend. Yet, we believe that the repricing in different assets will continue and it is too soon to aggressively call out any obvious buying opportunity that could emerge in areas such as Europe, once the Italian uncertainty is over, and EM, when the threat from rising interest rates and a strong dollar potentially dissipates. We have been scaling back overall risk for some time, rotating towards the more defensive spaces of quality and value on the equity side and adding duration on the bond side (core government bonds -- in particular, US Treasuries). We don’t see any compelling reason to change our view at this time, as we believe that interest rates in the US are reasonably close to peaking.

High Conviction Ideas

  • Multi-asset: We maintain a cautious approach to risk assets in the short term, with low absolute exposure to equities and credit on the back of fragile investor confidence. In equities, we still have a mild preference for the US market and for European quality and value themes. We no longer view the UK as appealing: the potential upside for this market vs the overall European market is fading as the Brexit deadline draws closer. We remain very selective on EM assets. We maintain a low duration bias, expecting an upshift of the German curve, while we believe investors should add duration in the US. We are very selective on credit and we have recently become even more conservative on European credit. We retain hedges to protect against rising political risk and market volatility.


  • Fixed income: We believe that bond yields could remain close to current levels. Amid rising volatility with regard to risk assets, adding duration in the US could be a defensive strategy; we still see little value in European core bond yields. In a late cycle phase, we believe investors should look to be defensive by reducing credit risk and increasing their focus on liquidity and the quality of securities.
  • Equities: We are entering a more volatile end-of-year phase, during which market attention will be on the earnings season that is starting. This will be key to assessing the impact of tariffs, turmoil in emerging markets, rising oil prices, and a strong dollar on corporate performances. This phase calls for a rotation driven by valuations. Based on this view, we are cautious on the most expensive areas of the market (growth in the US) and we favour quality stocks trading at appealing valuations.
  • Real assets: In a world in which the search for income has often been directed towards crowded areas of the market, we think that exploiting opportunities across the credit continuum (liquid and illiquid assets) can help to reduce concentration risk for investors with a long term horizon able to bear some liquidity constraint.

Important Information


Diversification does not guarantee a profit or protect against a loss. 


Unless otherwise stated, all information contained in this document is from Amundi Pioneer Asset Management (“Amundi Pioneer”) and is as of October 30, 2018.


The views expressed regarding market and economic trends are those of the authors and not necessarily Amundi Pioneer, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading on behalf of any Amundi Pioneer product. There is no guarantee that market forecasts discussed will be realized or that these trends will continue. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested.

This material does not constitute an offer to buy or a solicitation to sell any units of any investment fund or any service.


Date of First Use: October 30, 2018.

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We believe that it is premature to call it a bear market. The configuration that is opening up has more to do with a correction than a full reversion to a bear market trend.

Contributing Authors

Pascal Blanque
Group Chief Investment Officer, Amundi


Vincent Mortier
Deputy Chief Investment Officer, Amundi