Investors have not sufficiently adjusted their view of the economic cycle

Investors (we look at the United States and the euro zone) have understood that the end of the expansion cycle no longer leads to an increase in inflation and interest rates, which is a major break from the past. But they struggle to accept that the end of the expansion cycle no longer brings about a deterioration in the financial situation of companies, thanks to weak growth in labour costs and low interest rates. We therefore have a deterioration in equity and credit markets that does not tally with the trend in creditworthiness or in companies’ situation.