Credit Suisse Backs Stocks in '19, But Says Boost U.S. Duration

(Bloomberg) -- Investors would be smart to remain bullish on equities in 2019, but should start switching to longer-duration U.S. bonds, Credit Suisse Group AG said in its investment outlook.

“In a late-cycle phase, equities typically continue to outperform most asset classes,” Michael Strobaek, Credit Suisse’s global chief investment officer, and Nannette Hechler-Fayd’herbe, global head of investment strategy, said in a note. “Thus, equities should still be favored unless valuations become too stretched or a contraction takes shape. However, U.S. investors should begin to lengthen bond duration.”

Credit Suisse Backs Stocks in '19, But Says Boost U.S. Duration

The Swiss lender joins a number of major market players in remaining optimistic on stocks despite a global equities plunge of about 10 percent over the past two months. However, in a sign that U.S. economic growth is nearing its peak, more and more strategists, including Goldman Sachs Group Inc. and JPMorgan Asset Management are recommending diversifying investment portfolios through cash or bonds.

Credit Suisse expects only a limited further increase in U.S. yields in 2019, a trend that fueled the stock market correction this year. And tech stocks, which have led the recent sell-off in the Nasdaq Index, should benefit from a late stage in the U.S. economic cycle and is Credit Suisse’s preferred sector.

The eurozone stock market, according to Credit Suisse, may catch up with U.S. gains next year -- unless Italy triggers a crisis -- as steady economic growth and rising interest rates support financials and other domestically focused companies. While valuations for emerging-market bonds, stocks and currencies are appealing, China’s possible slowdown as well as an escalating trade war pose risks.

©2018 Bloomberg L.P.