The Punchbowl Is Fully Spiked – May 10, 2021

A just-published report updated our views on the major global financial markets and our multi-asset investment allocation. The theme of the report is that although the backdrop is still supportive, a lot of good news is already discounted in risk asset markets. Future returns will be more muted. Moreover, there are budding risks to monitor even aside from extremely overbought conditions and stretched valuations in some markets and sectors.

We are maintaining a modest tilt in favor of equities relative to bonds on a 6-12 month horizon, but extremely overbought equity markets argue against adding net equity exposure to portfolios at this time. Strong growth and budding inflationary pressures will boost bond yields further in the coming year and, thus, we are maintaining an underweight in bonds in a multi-asset portfolio, while favoring credit within fixed-income portfolios. Although corporate earnings will remain supportive for global equities, there are good odds of subpar returns in the next 6-12 months. We currently favor EM, German and Swedish equities within global equity portfolios, and are neutral with a downgrade bias on U.S. equities. In addition, cyclical economic conditions warrant underweighting the U.S. dollar in currency portfolios.


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