The Global Asset Allocation recommendations are similar to those of last month.
(SUW – strong underweight, UW – underweight, N – Neutral, OW-overweight, SOW – strong overweight)
|Economic data are mixed, inflation rates are trending lower, and central bank rate hikes are close to the end. However, valuations, especially in the US, are not cheap compared to fixed income assets. Tight monetary policies and recession fears still present headwinds.
|Elevated inflation rates, though declining, are potential risks to bonds.
|Declining inflation and slowing economic growth (potential recession) decrease the demand for commodities and real assets. Real estate, especially office buildings, could present another potential risk.
|Cash offers attractive yields, low duration and good place for liquidity.
|Despite a resilient labor market and strong consumer spending, manufacturing and other leading indicators like business conditions, new orders, and lending conditions have shown weakness. Valuation is still expensive compared to the historical average. AI-induced tech rally offers tailwinds.
|International Markets (DM)
|Valuations are attractive compared to the US. Currencies may appreciate as the US dollar has peaked.
|Regions and Styles
|Emerging Markets (EM)
|Valuations are attractive relative to the US. Local currencies may appreciate further against the USD. China may adopt new stimulus measures as its economic recovery stalled.
|U.S. Growth vs. Value
|Value stocks are cheap compared to historical averages. Slowing economic growth and higher interest rates also makes growth stocks unattractive. However, the AI boom may offer a tailwind to tech sectors.
|U.S. Small vs. Large-Cap
|Small caps offer the cheapest valuation in decades. High quality small cap stocks should provide tremendous upside potential.
|Real Asset Equities
|Declining inflation and economic growth concerns should put pressure on commodity prices. Higher interest rates and reduced demands for office space are unfavorable for commercial real estate.
|U.S. Investment Grade
|Corporate balance sheets remain solid, but the elevated inflation rate may last longer, and the FED may continue raising rates and keep interest rates high longer than expected.
|International bond yields stay volatile as central banks continue hiking rates to combat inflation.
|U.S. Long-Term Treasury
|Elevated inflation may last longer than what most investors had expected.
|Declining inflation rates may make TIPs unattractive.
|Credit fundamentals remain supportive, and spreads are around historical average.
|Floating Rate and Bank Loans
|Spreads are attractive and short-term rates are high.
|EM Bonds (USD)
|Yields are still attractive and EM country fundamentals remain solid.
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