We should be optimistic about equities and corporate bonds - Natixis

Analysts at Natixis consider that we should expect equity markets to rise and credit spreads to remain low because risk-free long-term interest rates remain low; corporate profitability is strong despite slower growth and there are no mechanisms that could transform a slowdown into a recession.

Key Quotes: 

“Equity and corporate bond markets have been quite erratic since 2017 (we look at the situations in the United States and the euro zone). But we believe investors now have reason to be optimistic about these markets, since: Risk-free interest rates will remain much lower than growth rates and investors will have to return to risky assets to obtain acceptable returns; Even though growth is slowing down, corporate profitability remains strong; We cannot see any mechanism that could trigger a recession” 

“Even though growth is slowing down, corporate profitability remains strong thanks to the small increases in unit labour costs, the decline in interest payments on debt because of the low interest rates and the tax reforms, which keep companies’ credit quality high. This is noticeable for example from the ongoing fall in default rates."

“We should be optimistic about equities and corporate bonds.”