The U.S. and China may have reached a truce, but investors have plenty of other conflicts to worry about.

The sugar high spurred by this weekend’s agreement to restart trade talks is fading fast, focusing the minds of money managers caught between assets at war.

Markets are pricing both the best- and worst-case market scenarios, handing a conundrum to those riding the melt-up in everything: Pay up for defensive strategies, bet on more gains, or lock in the 2019 windfall.

“We had a rally in both risk-free and risk assets,” said Geraldine Sundstrom, portfolio manager at Pacific Investment Management Co. “Both are priced to perfection. We have a fixed-income market priced in between heaven and hell.”

For heaven, read a combination of dovish monetary policy and trade-war resolution that gives the business cycle extra juice. For hell, brace for a prolonged trade war, faltering growth and impotent central bankers.

Faced with the divided outlook, Pimco is mildly underweight equities with a preference for quality stocks, favors more liquid, higher-quality credit and is keeping back cash for dip-buying opportunities.

Bond ‘Excess’

Bond investors made their bet in the first half, and were rewarded with a whopping return as President Donald Trump escalated protectionist spats with China, Europe and Mexico. That amplified slowdown fears and wagers for easier monetary policy.

But the trade is no longer so simple. Economic data are sending mixed signals and market expectations for Federal Reserve rate cuts look extreme. Both Barclays Plc and Goldman Sachs Group Inc. have turned underweight Treasuries on signs the rally is exhausted, while BlackRock Inc. called recent yield moves “excessive” and urged patience before boosting exposure.

“We see many of the supposed safe havens as offering a period of return-free risk rather than risk-free returns,” said Will Hobbs, chief investment officer at Barclays Investment Solutions in London. He reckons the resilience of the U.S. private sector “should act as a significant barrier to the darker economic times already assumed by large chunks of the government bond complex, and indeed wider safety or quality trades.”

First « 1 2 3 » Next