A just-published report updated our multi-asset recommendations, focusing on both the cyclical outlook and shorter-term prospects. Stocks and bonds are oversold and have discounted a lot of negative news, and thus a near-run bounce is probable. Beyond the short term, the end of the economic and investment cycles is not yet on the horizon and the implication is that both stock prices and bond yields should be higher in 12 months: we continue to favor equities over bonds on a 6-12 month horizon.
Equities have been significantly de-rated this year, albeit U.S. stocks have only unwound the huge overshoot in valuations triggered by hyper-accommodative monetary and fiscal policies. Non-U.S. valuations are more appealing, and we expect equity market leadership to shift from the U.S. to Europe and emerging markets, as huge U.S. earnings tailwinds unwind.