Bonds Expected to Outperform Equities, Pimco Says

1034 GMT – Bonds will meaningfully outperform equities over the cyclical horizon, say Erin Browne and Emmanuel Sharef, portfolio managers at Pimco, say in a note. Earnings expectations for the second half of 2023 and 2024 are still too high, and equity valuations appear rich across every metric we track, they say. “This reinforces our stance that investors should aim to be underweight equities, seek quality, and take advantage of the diversification, capital preservation, and upside opportunities available in bonds,” they say. (emese.bartha@wsj.com)

Return Potential Seen Supportive for Shift Toward Fixed Income Assets

1030 GMT – Elevated macro uncertainty, a likely economic downturn, and higher yields that bolster return potential all may support a shift in allocation toward fixed income, Erin Browne and Emmanuel Sharef, portfolio managers at Pimco, say in a note. “Restrictive monetary policies are affecting global economies after long and variable lags, credit is tightening, and signs of breakage have started to appear in the financial sector,” they say. Pimco’s business cycle models forecast a recession in the U.S. later this year, and how different asset classes will perform is likely to depend heavily on the severity of the recession and, crucially, on central bank behavior, they say. (emese.bartha@wsj.com)