Amundi's Mortier Flags Fed Independence Risks, Shifts Away from Megacap Stocks

Vincent Mortier, the chief investment officer at Amundi-the biggest asset manager in Europe with €2.3 trillion under its belt-is sounding the alarm bells about the U.S. Federal Reserve's independence as 2026 approaches. He warned that political pressure on the Fed could seriously shake markets, especially if the current governance structure changes.

Mortier highlighted the risk of Fed Chair Jerome Powell being replaced by a candidate more aligned with President Donald Trump, who has openly criticized Powell's pace on rate cuts despite steady economic expansion and ongoing inflation. Such a shakeup might lead to policy rates dropping much lower next year than the market currently prices in.

This tension contributes to Amundi's cautious stance on megacap stocks-particularly the so-called "Magnificent Seven" tech giants that have carried Wall Street on their backs. While the firm hasn't liquidated its holdings outright, it employs derivatives as a safety net to curb potential downside, reflecting a hedged approach amid noisy valuations in AI-focused sectors.

"Being underweight these mega tech names has cost us this year," Mortier admitted, "but we prefer a bit of performance sacrifice in exchange for protection." This balancing act reveals the push and pull investors feel between chasing growth stocks and managing risk amid simmering market jitters.

On the fixed-income front, Amundi is tilting toward European and emerging-market bonds, betting on a more dovish European Central Bank than the market expects. Mortier also anticipates the U.S. 10-year Treasury yield to hover around 4%, with policymakers unlikely to tolerate a significant rise given concerns about debt sustainability.

To keep yields in check, the U.S. Treasury might skew toward issuing shorter-term debt, while the Fed could potentially restart bond purchases if needed. Additional demand drivers cited include dollar-pegged stablecoins and plans to relax bank capital rules, all aimed at bolstering Treasury appetite in a tricky environment.

Currency wise, the dollar's recent decline-more than 8% against major currencies this year-is expected to continue weakening, aligning with Amundi's outlook amid these broader policy dynamics.

With Fed independence up in the air and megacaps under scrutiny, the market's roadmap for 2026 may look anything but smooth. Will the Fed hold its ground or buckle under political pressure? For now, these are questions that investors and strategists alike will be chewing over as the calendar flips.