The substantial correction suffered by the equity markets (8% EUR Stoxx 600 and 10% S & P 500) in the first days of February has completely changed the mood of the investors, accustomed to a scenario characterized by brilliant performances and extremely low volatility.

As always in these cases, it is difficult to say whether the correction is over and how far it further can go. It can instead be affirmed that the drop is for now of a technical and not of a fundamental nature, that is the economic fundamentals that justified the growth of the US stock market remains intact, bringing the corporate valuations now to fairly interesting levels.The trigger for the recent stock decline is attributable to the potential rise in inflation in the United States. Inflation in America has dropped steadily last year but today it seems to be back. Even in Europe the leading indicators of inflation are indicating up. An increase in inflation would make central banks less accommodating and force them to accelerate the removal of monetary stimulus. This would raise real long-term rates(still very low), potentially weighing on the valuations of the different asset classes.We do not think that the US central bank will aggressively raises the rates this year, the monetary tightening will be there but it will be gradual. The uncertainty about the speed of the rate hike, however, will result in increased volatility of the market, well above that recorded during the last year.

From a currency point of view , we believe that the dollar may remain weak for the time being, particularly against the EUR, the worries about the ever-increasing US deficit could manifest itself in an increased demand for capital with a consequent increase in rates. A “devaluation” of the US dollar could also be welcomed to help stabilize the position of US external indebtedness.

The current American political uncertainty with Trump always under scrutiny certainly does not help to counter what mentioned above.Gold should remain on good levels for now, pay attention to increased volatility in the price of the yellow metal due to the rise in US rates, but we still consider interest in investing in gold, particularly to increase the risk diversification of the portfolio.