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LONDON (Reuters) -Record peaks, pricey valuations, narrow markets, frenzied tech bandwagons and even punchy alternatives in bonds – all surely gnaw at U.S. household savers to lighten up on stocks. Yet, not a bit of it.In a sort of strange long-term momentum play, U.S. households lucky enough to have substantial savings find themselves shacked up with equities like never before.JPMorgan long-term strategists Jan Loeys and Alexander Wise unpick what they dubbed the American “love affair” with equity and show how the share of stocks held by households and non-profit funds, such as university endowments, had quadrupled over 40 years to record levels of more than 40%.While that may seem a modest share of total savings, it’s actually grown steadily since a nadir of around 10% in the 1980s, far exceeds equivalent equity holdings in other major countries and seems at odds with an ageing population that might reasonably be minded to “de-risk” investments into retirement.The equivalent stock share among savings of Japanese and German households, for example, is only 13% and 16%, respectively, and it’s about 26% in France, the JPMorgan team estimate. And, more pointedly, these have not increased at all in about 30 to 40 years.Despite all the whys and wherefores of that behaviour, one key reason revolves around inertia, some satisfaction and not a little hope about the future.Using data from the Federal Reserve’s U.S. financial accounts report, Loeys and Wise posit that the 40-year rise in the share of equity in household savings may simply be down to passive outperformance of stocks over that period. In other words, savers just sat tight rather than actively chasing markets either way.’GO WITH THE FLOW’Unlike professional fund managers, who tend to ‘mean revert’ or retain target weightings by selling when outperformance of one asset class inflates the relative share of holdings in portfolios, households have closed their eyes and crossed their fingers.For the past 40 years at least, it’s hard to argue with it as a strategy.”One possibility, contrary to how we all like to think of strategic asset allocation, is that end investors may not really have a strong view, or even a vague one, on how much they want to allocate to different asset classes and simply go with the flow,” the JPMorgan strategists wrote.Given that U.S. equities earned almost 11% per annum over the past 35 years – more than twice the annual return on bonds – simply compounding those returns over the period without chopping and changing would have led to that steady quadrupling of the stocks share of their investments.That’s not to say it’s necessarily about indifference – more an extrapolation of past performance and confidence that it can continue. And in a circular feedback loop, that very confidence to hold ever larger shares has seeded at least half the outperformance of U.S. equity versus the rest of the world – with the rest coming in the way of faster earnings growth.There are other reasons of course – low economic volatility and interest rates over those decades encouraged more risk-taking and the rise of cheaper passive investment vehicles and direct equity-buying tools drew many into the equity space.What’s more, Loeys and Wise reckon we may have hit a high watermark that leads to some change of behaviour as macro volatility climbs over the coming decade, higher yields make bonds more attractive and demographic ageing eventually demands that at least some risk gets taken off the table.However, don’t hold your breath. They conclude: “The move toward lower equity allocations by U.S. households and non-profits is not imminent as return expectations are probably still quite bullish and households do not change allocations that fast.”DAMAGING TO YOUR WEALTHThat said, fear of a narrowly-led, overvalued stock market at all-time highs surely creates some nervousness. After all, the S&P 500 and Nasdaq Composite indexes have roughly doubled from pre-pandemic levels and forward price/earnings multiples – while below historic peaks – are 20%-30% above long-term averages.Time to lighten up? Hold your horses, says Duncan Lamont, head of strategic research at Schroders (LON:SDR).With a deep dive into 100 years of market returns, Lamont reckoned cashing out of stocks at record highs – where they’ve been at almost a third of 1,176 months since 1926 – would have been very costly over time. Average inflation-adjusted stock returns in the 12 months after hitting new records are superior to those from any other month – 10.3% versus 8.6%. And that stacks up over the long run.Put another way, $100 invested in U.S. stocks in 1926 would be worth $85,000 in inflation-adjusted terms at the end of last year – annual growth of 7.1%.However, cashing out of stocks in a month when they hit a new record and only returning when they were not would have meant that final figure was just $8,780 – some 90% less, with an annual “real” return of 4.7%. “It is normal to feel nervous about investing when the stock market is at an all-time high, but history suggests that giving in to that feeling would have been very damaging for your wealth,” Lamont concluded. “There may be valid reasons for you to dislike stocks, but the market being at an all-time high should not be one of them.”The opinions expressed here are those of the author, a columnist for Reuters. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Turns out, Donald Trump still likes tariffs. In his bid for a second term, he is promising a 10 percentage point tariff increase on all America’s trading partners, and dangling a tariff on Chinese imports of at least 60 per cent. All that might sound similar in tone to his first term, but trade watchers should quell any sense of nostalgia. His return could be quite different.To recap, Trump’s first term started with his critics dismissing his threats as bluster. His tweets railing against bilateral trade deficits sent pundits into a frenzy, as they frothed that such figures didn’t matter. Then came the tariffs, on imported steel and aluminium, as well as hundreds of billions of dollars of imported Chinese goods. Some countries secured carve outs; others negotiated deals.Trump’s second term would have echoes of his first. Some old disputes are still simmering: a fight over subsidies to Airbus and Boeing; a spat over digital services taxes; tension over trade in steel and aluminium. Concerns about China’s economic practices have only become more intense, as the Biden administration has maintained Trump’s tariffs and tightened restrictions on supplies of advanced chips.But a second term would be different in at least three ways, starting with the scope of the threatened measures. During Trump’s first term, tariffs on China reshuffled activity, creating winners and losers, but with only muted macroeconomic effects. One study found that while importers bore most of the cost, retailers rather than consumers swallowed the bulk of it, limiting the effects on inflation.Tariffs of 10 per cent on imports from everywhere and 60 per cent on goods from China would have more obvious macroeconomic effects. (They would almost certainly face legal challenges, but I’ll leave the lawyers to argue about that.)Capital Economics, a consultancy, estimates that as an upper bound the 10 per cent tariff could lift inflation to between 3 and 4 per cent by the end of 2025. Bigger exchange rate movements seem likely. And retaliation seems inevitable, particularly now the European Commission has new powers to hit back outside of the World Trade Organization’s hobbled system of solving disputes.A second difference would be in the nature of the debate. Screeching about America’s bilateral trade deficit with China can now be informed by the experience of the first batch of tariffs. That reduced the bilateral trade deficit with China by a bit, but was more than offset by increasing trade deficits with other countries including Mexico, some of which are closely tied to China’s supply chains. The discussion around a 10 per cent tariff should be more interesting, though controversial. Former US trade representative Robert Lighthizer, who seems likely to serve in the next administration, has argued that America’s problem is not necessarily bilateral trade deficits (absent unfair practices), nor even a trade deficit in any single year. Rather, a broader import tax is supposed to tackle America’s pattern of consistent trade deficits, year after year. A third difference between Trump’s first and second term reflects the evolving position of China. On top of the cemented concerns about China’s chip production, the Biden administration recently issued a public warning for it not to solve its domestic economic weakness by pumping out manufactured goods to sell overseas.A glance at official data suggests that China’s current account surplus isn’t much different from 2016. But Brad Setser of the Council on Foreign Relations says there is something fishy about the figures. Other indicators suggest sharply rising Chinese manufacturing exports. Setser’s work with Volkmar Baur of Union Investment, an asset manager, suggests that in 2022 China’s surplus in manufacturing goods grew to record highs, of almost 2 per cent of world gross domestic product. During Trump’s first term the European Commission did not apply broad measures to deter the trade diverted from America, beyond those on steel. And between 2018 and 2020, the trend in its aggregate imports from China did not obviously change. But since the pandemic, the EU’s trade deficit with China has risen sharply, to the point of becoming a source of political tension.If Trump follows through with new restrictions on America’s trading partners in general and China in particular, the pressure on European producers would grow. Their access to the US market would be restricted. And they would also face stiffer competition in other markets, including their own, due to other trade being diverted away from America. In that context, it seems easier to imagine Trump’s taste for tariffs catching on. [email protected] Soumaya Keynes with myFT and on X More

Milei, speaking in an interview with local news broadcaster TN, said he would look to stop the monetary authority from printing more bills in a bid to rein in inflation, which currently tops 200% annually.The libertarian president, who took office in December with a promise of controlling the economy in a country facing spiraling poverty, said the International Monetary Fund (IMF) supports his policies.”The fund is very satisfied with what we’re doing,” Milei said following a meeting earlier in the day with Gita Gopinath, the fund’s first deputy managing director.Gopinath said in a statement that the Milei administration’s “initial actions are starting to bear fruit, although the path ahead remains challenging.”The IMF recognized Argentina’s efforts to establish a strong fiscal anchor. In December, Argentina devalued the local peso currency by more than 50% against the U.S. dollar.”Consistent and well-communicated monetary and (foreign-exchange) policy will be necessary to continue to bring down inflation durably, rebuild reserves, and strengthen credibility,” Gopinath said. More

Core consumer prices rose 0.4% in January from a month earlier, well above the pace consistent with the Fed’s 2% annual inflation goal. That, along with a 3.3% annualized increase in fourth-quarter GDP and the more than 350,000 jobs added to the U.S. economy in January, “has reinforced my view that we need to verify that the progress on inflation we saw in the last half of 2023 will continue and this means there is no rush to begin cutting interest rates to normalize monetary policy,” Waller said in remarks prepared for delivery in Minneapolis.Progress on inflation, he said, has been both “real” and “considerable.” Accounting for the latest data, he said, January inflation by the core personal consumption expenditures index – to be released next week – will likely come in at 2.8%. It stood at 4.9% a year ago.While inflation is still “likely” on track to reach the Fed’s 2% goal, he said, “I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole.”And with most other economic data suggesting the economy is still fundamentally solid, he said, “the risk of waiting a little longer to ease policy is lower than the risk of acting too soon and possibly halting or reversing the progress we’ve made on inflation.” The U.S. central bank has held its policy rate steady in the 5.25%-5.5% range since last July, and minutes of its policysetting meeting last month show most central bankers were, like Waller, worried about moving too quickly to ease policy. Waller’s take on the economy and monetary policy have often been a bellwether for the Fed as a whole, and his remarks Thursday marked a change in tone from his last speech, in which he said the Fed is within “striking distance” of its inflation goal. Now, he said, he will be closely watching wage growth, economic activity and employment not only for any signs of weakness that could force the Fed to act more quickly, but also for whether they are “consistent with continued progress toward 2% inflation.” Waller also pushed back on the idea that the Fed risks sending the economy into recession if it waits too long to cut rates, saying the Fed can afford to “wait a little longer” to ease policy. “In the absence of a major economic shock, delaying rate cuts by a few months should not have a substantial impact on the real economy in the near term,” Waller said. “And, I think I have shown that acting too soon could squander our progress in inflation and risk considerable harm to the economy.” Traders of futures contracts tied to the Fed’s policy rate are betting the Fed will not start cutting interest rates until its June 11-12 meeting. More

Federal Reserve Governor Christopher Waller said Thursday he will need “at least another couple more months” of data before inflation is falling enough to warrant interest rate cuts.
While he said he still expects the FOMC to begin lowering at some point this year, Waller said he sees “predominately upside risks” to his expectation that inflation will fall to the Fed’s 2% goal.
The remarks are consistent with a general sentiment at the central bank that while further rate hikes are unlikely, the timing and pace of cuts is uncertain.

Christopher Waller, governor of the US Federal Reserve, during a Fed Listens event in Washington, D.C., on Friday, Sept. 23, 2022.
Al Drago | Bloomberg | Getty Images

Federal Reserve Governor Christopher Waller said Thursday he will need to see more evidence that inflation is cooling before he is willing to support interest rate cuts.
In a policy speech delivered in Minneapolis that concludes with the question, “What’s the rush?” on cutting rates, the central bank official said higher-than-expected inflation readings for January raised questions on where prices are heading and how the Fed should respond.

“Last week’s high reading on CPI inflation may just be a bump in the road, but it also may be a warning that the considerable progress on inflation over the past year may be stalling,” Waller said in prepared remarks.
While he said he still expects the Federal Open Market Committee to begin lowering rates at some point this year, Waller said he sees “predominately upside risks” to his expectation that inflation will fall to the Fed’s 2% goal.
He added that there are few signs inflation will fall below 2% anytime soon based on strong 3.3% annualized growth in gross domestic product and employment, with few signs of a potential recession in sight. Waller is a permanent voting member on the FOMC.
“That makes the decision to be patient on beginning to ease policy simpler than it might be,” Waller said. “I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole.”

The remarks are consistent with a general sentiment at the central bank that while further rate hikes are unlikely, the timing and pace of cuts is uncertain.

The inflation data Waller referenced showed the consumer price index rose 0.3% in January and was up 3.1% from the same period a year ago, both higher than expected. Excluding food and energy, core CPI ran at a 3.9% annual pace, having risen 0.4% on the month.
Reading through the data, Waller said it’s likely that core personal consumption expenditures prices, the Fed’s preferred inflation gauge, will reflect a 2.8% 12-month gain when released later this month.
Such elevated readings make the case stronger for waiting, he said, noting that he will be watching data on consumer spending, employment and wages and compensation for further clues on inflation. Retail sales fell an unexpected 0.8% in January while payroll growth surged by 353,000 for the month, well above expectations.
“I still expect it will be appropriate sometime this year to begin easing monetary policy, but the start of policy easing and number of rate cuts will depend on the incoming data,” Waller said. “The upshot is that I believe the Committee can wait a little longer to ease monetary policy.”
Markets just a few weeks ago had been pricing in a high probability of a rate cut when the Fed next meets on March 19-20, according to fed funds futures bets gauged by the CME Group. However, that has been pared back to the June meeting, with the probability rising to about 1-in-3 that the FOMC may even wait until July.
Earlier in the day, Fed Vice Chair Philip Jefferson was noncommittal on the pace of cuts, saying only he expects easing “later this year” without providing a timetable.
Governor Lisa Cook also spoke and noted the progress the Fed has made in its efforts to bring down inflation without tanking the economy.
However, while she also expects to cut this year, Cook said she “would like to have greater confidence” that inflation is on a sustainable path back to 2% before moving. More

SEOUL (Reuters) – South Korea hopes to mirror Japan’s efforts to boost the value of its companies as the neighbour’s stock market surges to a record high, with measures Seoul hopes will narrow a “Korea discount” on stock prices.But while years of effort at pushing Japanese companies to be more responsive to shareholders have helped lift Tokyo shares above their 1989 “bubble”-era peak, the reforms floated last month by South Korean President Yoon Suk Yeol may not continue to boost the Seoul bourse, analysts say.The benchmark KOSPI index hit a more than 20-month high this week on optimism over the “Corporate Value-up Programme”, to be announced on Monday, but some market participants are bracing for investors to take profits next week. They suspect gains may not continue beyond national elections in April.”At this stage, we can’t be sure how consequential the value-up programme will be for the corporate sector,” Societe Generale (OTC:SCGLY) analysts said. “What we can say with greater confidence is that the probability of a re-rating has increased.”The analysts cited two encouraging factors that could make this programme different from previous, failed reform efforts: the example of Japan and higher retail investor participation than the past.The reforms aim to unlock value in South Korean companies, which have underperformed their global peers largely due to poor decision making and weak governance by the country’s opaque chaebol conglomerates.Yoon also wants to cheer domestic retail investors, who have been heavy sellers of Seoul shares. Signs of reform have accelerated purchases by foreign investors.Corporate reform is a major reason Japan’s benchmark Nikkei stock average broke its 34-year-old record on Thursday, marking a 17% spike so far this year after surging 28% in 2023.Some analysts say Seoul’s programme, the latest in a series of steps since late last year, could provide greater upside potential than in Japan, but they warn that reforms must have teeth to make a real impact.FOLLOW-UP NEEDEDThe measures will nudge listed companies with low valuations to report plans to boost corporate value, and will introduce an index of firms with strong shareholder value, the Financial Services Commission says.The government is considering tax incentives to encourage companies to return more to shareholders, the finance minister said last week. Also planned are individual savings accounts with tax breaks on dividend and interest income from local stocks.Some companies are responding. Hyundai (OTC:HYMTF) Mobis, Samsung (KS:005930) C&T, and SK Innovation are among firms announcing plans this year to cancel 3.4 trillion won ($2.6 billion) worth of company-held shares – boosting share value by reducing supply – compared with 4.9 trillion won for all of 2023.”Valuations could be boosted by at least 25% if we assume Korean deep value sectors drift towards even half the valuations of their Taiwanese counterparts,” HSBC analysts said in a note.Monday’s measures will likely bolster confidence that South Korean reforms can be sustained, Morgan Stanley analysts said, but without follow-up the KOSPI will be kept “range-bound but lean slightly to the downside due to some level of profit-taking, with the focus turning more to stocks that really matter on the reform drive”.The KOSPI rose 19% last year, underperforming the Nikkei and the U.S. S&P500. In 2022, its performance beat only Russia among the Group of 20 big economies.Domestic retail investors sold a net 13.8 trillion won ($10.4 billion) of local shares last year, their biggest sell-off in 11 years. So far this year, they have sold 5.1 trillion won, while their purchases of record high U.S. stocks have more than doubled from the same period last year and they have scooped up Japanese shares. Foreigners, by contrast, bought 11.3 trillion won of South Korean shares last year and have already added 10.2 trillion won so far in 2024 – 6.7 trillion won this month alone.To sustain the momentum, the authorities should consider requiring, not just encouraging, change, analysts say. Hurdles include high inheritance taxes and greater family ownership of companies than in Japan.”The government has come up with a well-drawn blueprint. Now it needs to bring carrots and sticks that will really change the companies,” said Han Ji-young, an analyst at Kiwoom Securities. ($1 = 1,326.4100 won) More

BENGALURU (Reuters) – The recent rally in global stocks has only a little further to go given last year’s unexpectedly sharp run-up, according to a Reuters poll of equity strategists who were evenly split on whether there will be a correction in the next three months.Starting in late 2023, the rally has pushed many indices close to lifetime highs and in some cases to new records on now-extinguished expectations that the U.S. Federal Reserve would start cutting rates as early as next month.Although rate cut bets have been tempered, indexes have continued to gain on strong earnings and booming tech stocks, even as bonds have retreated. The poll of around 150 equity analysts taken Feb. 9-22 showed all 15 major stock bourses surveyed were expected to rise this year, but only three were expected to gain more than 10%.By comparison, only two failed to rack up double-digit percentage gains in 2023.”We believe investors should be open-minded that there is a scenario in which rates need to stay higher for longer, and the Fed may need to tighten financial conditions,” said global markets strategists at JPMorgan in a recent note.Still, they added that the more than 20% rally in U.S. stocks since October “did not correct at all” despite the shift in rate expectations, saying that volatility was unusually low. “Investor positioning has increased significantly over the past few months, which may present an increasing headwind for the market,” they noted. While higher-for-longer interest rates could cap gains, strong corporate earnings are likely to cushion stocks from any major falls despite high valuations.A more than 85% majority of analysts, 71 of 83, who answered a separate question said corporate earnings would increase over the next six months.When asked if there will be a correction in the next three months, analysts were almost evenly split, with 45 of 88 across 12 markets saying unlikely and the remaining 43 saying likely.US, INDIA MARKETS TEND TO OUTPERFORM FORECASTSOf the 15 bourses, U.S. and India indices have most frequently outperformed analyst expectations since at least 2010.Backed by a strong economy, India’s benchmark BSE index is forecast to add 8% this year, extending 2023’s near 19% surge but the S&P 500 is seen gaining only 2.4%, a fraction of last year’s 24% rally.”The Indian economy remains a ‘star performing’ economy against other emerging markets,” said Neeraj Chadawar, head of quantitative equity research at Axis Securities.”Moreover, we firmly believe it will likely continue its growth momentum in 2024 and remain the land of stability against the backdrop of a volatile global economy.” Japan’s Nikkei index, which has risen nearly 50% since end-2022 to hit a record high on Thursday, was forecast to hold on to its gains to trade around 39,000 by year-end.The pan-European STOXX 600 advanced to an all-time high on Thursday boosted by technology stocks and is expected to gain around another 3% by year-end.”We think Europe will see sluggish growth and a mild contraction in activity in the U.S. will affect earnings – even though we don’t see an earnings recession, we think market expectations are high,” said Amundi strategists.Britain’s FTSE, also forecast to rise about 3.0% from current levels to touch 7,900 by the end of the year, is the only index in the poll that analysts downgraded their outlook for. In a November poll it was seen touching 8,000.(Other stories from the Reuters Q1 global stock markets poll package:) More