US Equities Can Live With Higher Rates: Analyst

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00:00It seems higher rates, I mean, we had the Moody's, now it looks like the Fed might not be able to move as much.

00:05What does it mean in terms of just how attractive different assets are at the moment?

00:11I think higher rates may not necessarily be such a bad thing unless they go up a lot higher versus where they are now.

00:16If it's really just because the economy continues to be fairly robust,

00:20I think that's actually probably going to be good for U.S. equities and global risk assets.

00:24In fact, I think the biggest reason for potentially cutting rates more than expected is if there is actually more signs of recession coming,

00:32whether that's a result of just the natural progression of things as the economy has been red hot for so long

00:38and naturally things are starting to weaken or because of the uncertainties introduced by all the trade negotiations.

00:44So generally speaking, I think if we don't see a further pop of 20 basis points, 30 basis points, 50 basis points

00:49for the reasons of people losing confidence in the U.S. Treasury and the U.S. fiscal situation,

00:56then I think the rates are kind of like low to mid-fours is actually okay.

01:00Both scenarios don't seem to be constructive, though, for U.S. equities, is what I hear you saying there indirectly.

01:07We're not super positive on U.S. equities at this point in time.

01:10If you actually look at the month of April alone, the U.S. equities were completely flat for the month,

01:14which is counterintuitive given all the things that happened in between and the huge volatility that came mid-month.

01:20But we do think that by this point, the market has already priced in that probably the average tariff for the U.S.

01:26is going to be 10 percent and maybe China specifically around 30 percent.

01:30So that's probably already a best case scenario in terms of where the tariffs settle out.

01:36People also have pretty high expectations regarding the passage of the big, beautiful bill,

01:40which is going to be potentially at least near-term stimulative with all the massive tax cuts,

01:45albeit medium to longer term.

01:47Who knows what that does to the fiscal picture?

01:49So I think the market has kind of priced in a lot of positives on the U.S. equities already.

01:53So we actually think that fixed income might be a little bit more interesting at this point in time,

01:57with the Treasury close to 4.5 percent.

02:00If it goes up any further or significantly further, I think actually, you know,

02:03Besant and Trump have mentioned they actually wanted Treasuries to come off.

02:07They wanted the 10-year to be closer to 4, maybe even lower.

02:09So I think the risk-reward for fixed income is probably better versus U.S. equities at this moment.