Global CIO Video: "We remain broadly optimistic toward global growth."
"What goes up must come down." Our economists recently used this phrase to describe the peak in economic activity they expect in coming weeks after a strong rebound this summer.
Yet it applies equally well to technology stocks. August saw a veritable melt-up in that sector, with the S&P 500 and Nasdaq indices hitting fresh all-time highs almost daily, but the early days of September brought about a sudden consolidation driven by profit-taking.
Nevertheless, the technology sector remains an interesting long-term investment, as its structural growth drivers are intact. For the time being, however, we are mindful of the sector's high valuations and weakening momentum.
As we discussed in the latest Investment Committee meeting, the correction in technology stocks and the broader equity market may well have been a sign of more volatility and setbacks to come. In our view, a number of risk factors currently warrant caution. In addition to the industrial production peak we expect this month, the highly contested US presidential election and the ongoing COVID-19 pandemic may lead to more meaningful setbacks in equity markets. Moreover, Brexit negotiations are stalling, increasing the risk of a no deal outcome by year-end.
In light of these risks, we retain our neutral allocation to equities in a portfolio context. Overall, we are optimistic toward growth. Our long-term view on stocks remains positive and our positioning moderately pro-cyclical thanks to continued tactical overweight positions in global commodities and credits.
Though the USD consolidated during the market correction, we believe that it will resume its weakening trend.