BNP Paribas strategists analyzed three possible extreme scenarios to take into account this year. How could they materialize?
The stock markets of the world seem, for now, to avoid that the decline in interest rates in the US would be postponed. Even from some investment banks they already anticipate some correction, but upwards, which a few months ago seemed somewhat unthinkable. It is worth noting that investors recognize not to devote much time to think about the risks of cola, that is, in those events or extreme, unexpected events, because they are unlikely to occur, but from events they would have a significant impact on economic growth and The world markets. For some analysts like Barbara Kollmeyer, Marketwacht, if the Fed, instead of continuing to lower the rate, upload it, this could probably be considered as a black swan scenario. In this regard, the BNP Paribas strategists, led by Viktor Hjort, evaluated what the black swans would be in 2025 who should be attentive and kollmeyer how the three largest could materialize and what the investors should do.
Black Swan 1: eventual fall in technological actions
One of them would be the fall in American technological actions: Magnificent 7 calls Technological actions now represent 33% of S&P 500; By market capitalization and with high valuations, a return to the average price/long -term profits would only mean a liquidation of 30, according to the BNP that believes that disappointments in the monetization of Genai, the efficiency improvements or a deceleration of Income could trigger a wave of sales in US shares. The simulations of the French bank suggest that a great correction of the actions, through the wealth effect, could cause a recession in the US.
The authors They base their opinion on the recession of 2001 in the US, which occurred in the midst of the sales wave of shares that occurred between March 2000 and October 2002. They provide for a possible correction of the 40%stock market, followed by an action of the Fed as the yields fall and the credit differentials are extended. The recessive effect would occur when consumer expense is affected, especially because BNP points out that households currently have almost 60 billion dollars in shares. Therefore, a way in which investors can protect themselves is to buy spans of sales options of NASDAQ-100, which is an options strategy in which long and short positions are taken in the same asset to protect themselves from a mass sale.
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Black Swan 2: That the president of the Fed is fired
Another swan would be that the president of the FED, Jerome Powell, is fired: suppose that the Fed fails to apply the large cut cuts required by President Trump in the midst of a great liquidation of actions or a slowdown in employment and Powell is out . Then, BNP offers a scenario in which a designated by Trump would be in charge of the Central Bank and all the governors designated by the Democrats would be quickly replaced. Despite the “Operational independence” From the Fed in monetary policy, BNP points out a recent event. At the beginning of January, Trump fired a member of the National Board of Labor Relations, who has protections similar to those of the Fed against dismissals. That official, Gwynne Wilcox, said he could try to restore the courts, which could give rise to a case in the Supreme Court to clarify whether Trump can fire officials from other agencies, such as the Fed, says BNP.
A trigger for this gray swan are tariff and immigration policies that cause greater inflation, forcing Fed to climb the fees. That, in turn, could make Trump care about the effect of the lowest prices of the actions and the slowdown in growth in the mid -mandate elections for Republicans. How to protect yourself? The damaged confidence about the independence of the Fed would cause an “abandonment of the dollar as a global reserve currency and, with it, sales of large -scale US assets”, Says BNP. Appointing a more moderate Fed president would cause an end of the performance curve (long -term yields would increase faster than short -term those) in the expectations of a less restrictive Fed.
Black Swan 3: A “Truss Moment” for Treasury Bonds
The third black swan would be a “Liz Truss” moment for the US Treasury Bonds: the gray swan dates back to 2022, when the brief mandate of the former Prime Minister of the United Kingdom caused a sudden increase in the yields of the bonds of the bonds of the British government and chaos in financial markets. The possible doubts of investors about US fiscal sustainability could cause an unlimited increase in treasure bond yieldwarn the strategists. American fiscal discipline and increased broadcast would make “Bond guards” They sell treasure bonds, which would raise the yields, possibly during the third quarter of this year. If inflation does not advance towards the objective of 2%, the Fed may not intervene to control the yields, and the 10 -year bonus could exceed 5%and be aimed at 6%. In addition, persistently higher yields of treasure bonds could also damage the assessment of risk assets, in particular US actions (which currently enjoy historically high valuations), while harming growth as the growth is hard General financial conditions. And, of course, the “risk -free” status of treasure bonds could be damaged. The dollar could be strengthened from such a crisis, but what complicates things for shares are historically high assessments of shares.
Other gray swans
On the other hand, BNP strategists point out that gray swans are not always negative. Other gray swans that identify are the dissolution of the OPEC+unit, the growth of the eurozone economy at a rate greater than 2% this year, the emergence of an upward market in Brazil, an boom driven by capital flows In Chinese actions, commercial real estate loans that increase the delinquent loans of banks, a cycle of non -payment in private debt and a rise in the productivity of artificial intelligence in the US economy.
Source: Ambito
