Osservatorio | January 2025
Between solid fundamentals and the Fed’s twists and turns, markets dance the tango.
At a glance:
The start of 2025 has been turbulent for both equities and bonds, which have been dancing a dramatic tango for over a year.
Analysts have offered many explanations for the latest rise in long-term rates, but the reason is simpler: the Fed made a sharp and unexpected turn, reverting in December to its June 2024 rate projections after lowering them in September. Another swing in the opposite direction is likely.
Since autumn 2023, U.S. 10-year sovereign yields have fluctuated without a clear trend, while Japanese yields have risen and Italian yields have fallen, bringing the spread back to levels seen in the early months of the Draghi government—chapeau, President Meloni.
Fundamentals remain unchanged, and data confirm the strength of the U.S. economy and Europe’s deep weakness, driven mainly by Germany’s automotive crisis. China is improving, and India is galloping ahead. Peace in Gaza will help everyone.
Inflation is gradually declining, and central banks will continue cutting rates—especially the ECB, which must avoid a costly Eurozone recession.
Growth and rate divergence still favor the dollar.
U.S. equities trade at high multiples but are supported by expected earnings growth.
European bank stocks remain undervalued, given strong shareholder returns (dividends and buybacks) despite the drag from lower interest rates.
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