Friday’s report (MRB Asset Allocation Strategy: “A Cautious Optimism”) focused on the outlook for the major global asset classes and updated our multi-asset portfolio recommendations. For now, we remain slightly pro-growth, betting on further upside in the global stock/bond ratio over the next 6-12 months.
Our base-case forecast is that the Strait of Hormuz will open reasonably soon, allowing the global economic expansion to roll on, supported by accommodative monetary and fiscal policies. The hard data have shown that solid economic momentum existed before the war took hold, and this strength has generally persisted over the past month.
A lot of good news, however, is already discounted. Thus, in view of already elevated earnings expectations and valuations, and given lingering near-term war and energy prices/supply uncertainties, we continue to recommend overweight exposure to cash within a multi-asset portfolio, complemented by a neutral exposure to equities and commodities, and an underweight exposure to fixed income. After a stellar past few years, however, returns on balanced portfolios are likely to be moderate rather than robust over the next 6-12 months, accompanied by above-average volatility.
