Asset Allocation

Asset Allocation Chart Book

Omicron uncertainty provides a sense of déjà vu

News of the spread of the Omicron variant has put COVID-19 back at the top of many investors’ list of concerns. While on a far smaller scale, the impact on markets so far has been qualitatively similar to that during the first COVID-19 meltdown between mid-February and late March of 2020. US Treasury yields have fallen, stock markets have stumbled – with US equities holding up better than those elsewhere – and energy commodities have seen big losses.

30 November 2021

Asset Allocation Focus

The case for US banks’ equities to outperform

We forecast that banks’ equities will outperform the rest of the US stock market over the next couple of years, for three main reasons.

24 November 2021

Asset Allocation Update

Taking stock of potential corporate tax reforms

This Update answers several questions on the Biden administration’s latest proposals for US corporate taxes as well as the global tax deal recently agreed among the world’s major economies. The proposed changes are probably, at the margin, a reason to think that US equities will underperform. Within the US market, we suspect the earnings of technology and pharmaceuticals companies would see the largest hit.

19 November 2021

Our view

We forecast that long-term bond yields will continue to rise across most major economies and especially in the US, where we think inflationary pressures are particularly strong. Otherwise, we think that the returns from most risky assets from here will be far less impressive than they have been since the spring of last year. That reflects not only a view that bond yields will climb further, but also how we see limited room for global growth to surprise on the upside and how, in many cases, valuations already appear quite stretched. Meanwhile, we think that the US dollar will grind higher from here on the back of a hawkish shift by the Fed relative to most other major central banks, and ongoing uncertainty around the strength of the global recovery.

Latest Outlook

Asset Allocation Outlook

Risky assets face a more challenging backdrop

While the combination of a strong economic recovery and accommodative monetary policy has fuelled healthy returns for many investors over the past 18 months or so, we think that the macroeconomic backdrop is now becoming more challenging. We still expect the economic recovery in the US to continue, but think that growth will fall short of expectations there, at the same time as it continues to lose momentum in China. Meanwhile, we suspect that the recent jump in inflation in the US will prove to be more persistent than most anticipate. As investors take note of this inflation, we forecast that the returns from most “safe” assets will be quite limited. Although we still project that “risky assets” will make gains, higher valuations and our view that global growth will underwhelm suggest to us that the returns over the next couple of years will generally be far less impressive than they have been since Q2 2020.

29 October 2021