1. Manufacturing activity, which is a leading indicator for economic growth, has slowed down in nearly every major economy, especially Europe and Japan. The U.S. remains relatively healthy, but how much will the slowdown overseas seep into the U.S. economy?
2. Slowing U.S. data and risks abroad, particularly trade, give the Fed the green light to cut rates. The market has priced in this expectation, with 4 cuts expected in the next 12 months.
3. Relative to fixed income, global equity valuations look attractive given the positive yield gap, and equities should benefit from continued monetary policy support.
4. Cyclical sectors (e.g., technology and materials) are favorable, as they are still lagging defensive sectors – even with the huge equity market rebound this year.
Source: Goldman Sachs
5. Central bank policy has become supportive again, which should underpin equities even as trade and other geopolitical risks increase volatility. Given strong returns, weaker overseas data, and rising trade concerns, attractive segments include U.S. large-caps, and the quality, value, and high-dividend markets.
For Sage’s Fixed Income Outlook in 5 Charts, click here.
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