Oshiro Associates: US equity market investors are basking in the positive fallout from a more-dovish-than-expected tone from the Federal Reserve.

Talking down expectations for 4 increases in interest rates to 2 has raised risk appetite and seen a wave of buyers drive equity values higher. The Dow Jones Industrial Average, one of the two main US stock indexes, is within a whisker of regaining its losses suffered at the beginning of 2016.

“Stocks had already recovered some of their losses but the Fed’s toning down the rhetoric has given the market the push it needed for investors to get back into ‘full risk on’ mode,” said an Oshiro Associates researcher.

The S&P500 is also within striking distance of erasing its losses for the year but, despite the positivity, Oshiro Associates urges investors to avoid buying into US equities at high valuations.

“The time to hop aboard has been and gone and investors such be looking to emerging markets which have taken a little longer to recover from the sell-offs we saw at the start of the year,” said the Oshiro Associates researcher.

The firm says it expects more dovish rhetoric from the Fed in the coming months and sees emerging market equities and as clear beneficiaries. It also believes that there will be a return to zero interest rates and potentially, a resumption of quantitative easing towards the end of the year if not sooner.

“Investors have been given the go-ahead they wanted to restart the party and we expect equities to push higher as the year progresses,” concluded the Oshiro Associates researcher.