Transcript
We stay risk-on heading into Q4, guided by a positive near-term macro picture.
Market choppiness shows why having an investment anchor is key.
1) Leaning into risk
We think the market’s current pricing of deep rate cuts reflects misplaced expectations for a typical business cycle – not a world shaped by supply constraints.
We see recession fears as overblown. Employment is still rising, cooling inflation is allowing the Federal Reserve to cut interest rates, and growth is not slowing sharply.
2) Fixed income focus
In a supply-driven regime, long-term bonds don’t reliably buffer against risk asset volatility – as seen since the pandemic.
We find quality and income in European short-term credit on less tight spreads. We think European government bond yields better reflect our policy rate expectations than in the U.S.
3) Staying nimble
Globally, we stay nimble given the upcoming U.S. election, geopolitical flare-ups and major policy shifts.
For example, we trimmed our Japanese equity overweight due to the drag on earnings from a stronger yen and mixed policy signals from the Bank of Japan.
We stay risk-on heading into Q4. We use our investment framework, based on understanding the new regime of supply constraints, as an anchor in volatile markets.
Market narratives have flipped this year: from buzz over artificial intelligence (AI) to concerns about big tech spending, and from recession fears to comfort in the U.S. economy’s resilience. Our anchor in these choppy markets: viewing this as a world shaped by supply – not a typical business cycle. We stay risk-on as U.S. inflation cools, interest rates fall and growth eases slowly. We stay overweight U.S. stocks, go beyond tech within our AI theme and stay nimble in Japan’s and China’s stocks.
Not a cyclical story
U.S. payroll growth, 2023-2024
Markets have swung sharply this