By John Bilton via Iris.xyz
Themes and implications from the Multi-Asset Solutions Strategy Summit
In brief
- Summer worries over geopolitics and the slide in U.S. inflation data are amply offset by the continued and synchronized pick-up in global growth. Despite the relative maturity of the U.S. business cycle, recession risks remain muted and a combination of global earnings upgrades and loose financial conditions are supportive for stocks and other risky assets.
- Globally central banks remain in mostly dovish mood; and even with balance sheet normalization in the U.S. and tapering of quantitative easing in Europe set to start this autumn, policy around the world is still loose.Rates are set to rise, but only slowly, so we maintain a small underweight to duration together with a modest overweight to stocks— diversified across regions, with a slight preference for the eurozone and Japan. We remain neutral credit, where we expect carry not capital growth to provide the bulk of the returns.
- Equity returns in late cycle are typically positive unless financial conditions tighten sharply. The slow pace of rate normalization and lack of inflation pressure create a good environment for taking risk, but we remain watchful for any deterioration in data, in particular employment, business confidence and consumer lending metrics.
Bull markets, it is said, must climb a wall of worry, and the one we’ve been in since March 2009 seems a perfect lab test for this idea. This summer threw worries aplenty at the market. Geopolitical tension? Check. Puzzlingly low bond yields? Yep. Oil price scare? You got it. Inflation? Missing in action. But for all this, stock markets pushed on to all-time highs, and with the world economy now enjoying its best period of growth this decade we see further upside.
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