Global CIO Michael Strobaek: "We are coming out of one of the worst recessions in history."
Even though the global coronavirus pandemic is far from over, risky assets did not take a break during the summer weeks in the Northern hemisphere. US equities overall flirted with all-time highs, while technology stocks set new records. Meanwhile, US Treasury yields continued to fall despite improving economic data, and that further buoyed precious metals.
We continue to expect cyclically exposed assets such as equities, commodities and credit to offer attractive return potential over a 3–6 month horizon against the backdrop of an economic rebound through the second half of this year. That said, the recovery during the rest of this year will likely not be as sharp as we have seen in recent weeks.
We maintain our neutral allocation to equities in portfolios for now. We acknowledge that "There is no alternative" (TINA) to equities is likely to hold true for longer, but see a number of risk factors that could lead to temporary corrections. One of them is industrial production momentum, which has rebounded sharply from its lows, but is likely to peak in September. Conversely, bond yields could back up even as momentum slows.
Furthermore, tensions between the USA and China might intensify ahead of the US presidential election. And in the USA, the deadlock over further stimulus and concerns over the election could worry investors. Even as we are mindful of these risks, we retain a moderate pro-risk tilt in our portfolios, as we continue to overweight commodities and credits.