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Asset Allocation

Asset Allocation Update

Weighing up the relative prospects for stock market sectors

We think the macroeconomic backdrop that we envisage is consistent with certain “defensive” sectors of the S&P 500 – utilities, healthcare and consumer staples – outperforming over the rest of this year.

17 August 2022

Asset Allocation Update

Answers to your questions on global markets

We held a Drop In yesterday outlining our latest forecasts for global financial markets. This Update answers some questions that we received during that Drop In but didn’t have time to address. In view of the wider interest, we are also sending this Asset Allocation Update to clients of our Global Markets and FX Markets Services.

10 August 2022

Asset Allocation Update

Credit spreads and excess returns

Although the spreads of many “risky” bonds have risen significantly this year, some aren’t currently at levels that have typically been followed by substantial future outperformance of their “safe” counterparts. Markets Drop-In (9th Aug): Chief Markets Economist John Higgins leads this 20-minute briefing on our latest quarterly Outlook reports from our Global Markets, Asset Allocation and FX Markets services. Register now.

9 August 2022

Our view

We expect further rises in global government bond yields and renewed falls in equity prices over the coming year. Government bond yields have typically peaked only shortly before the ends of central bank tightening cycles and we expect most major central banks to raise rates significantly over the remainder of this year. We think the increase in government bond yields, as well as a slowdown in global economic growth, will keep risky assets, such as equities and corporate bonds, under pressure. We also expect the worsening risk environment as well as aggressive tightening by the Fed to result in further US dollar appreciation.

Latest Outlook

Asset Allocation Outlook

We think the worst is yet to come for most risky assets

Although we think that we have now passed this cycle’s peak in long-dated US Treasury yields, we still suspect that investors are underestimating just how far the Federal Reserve will raise interest rates, and how long it will be before inflationary pressures ease sufficiently for interest rate cuts to come onto the agenda. With that in mind, we think that the yields of most “safe” assets will end this year above their current levels. Meanwhile, given our relatively downbeat view of the global economy, we also expect most “risky” assets to see renewed declines, as risk premia climb and disappointing growth in corporate earnings undermines global equities. We think, though, that the outlook for most safe and risky assets is brighter in 2023 and 2024.

5 August 2022