- We are maintaining underweight exposure to defensive areas of the U.S. market that we believe are still overvalued.
- Eurozone cohesion may continue to be challenged into 2017 as populist political movements pull against EU centralization of power.
- We remain cautious with respect to the recent rally in emerging-market stocks.
- For U.S. businesses, we believe modest but constructive earnings growth could emerge in the months ahead.
Investors witnessed a calm three-month advance for U.S. equities in stark contrast to last year’s historically turbulent third quarter in which stocks took a beating amid plunging commodity prices and China’s currency devaluation. This year, the quarter brought new record highs for major U.S. equity indexes along with more muted macroeconomic worries — a surprise for many investors who expected difficult post-Brexit conditions. Non-U.S. markets also rose with the rising tide of accommodative macro policy. Negative rates, it turns out, have a dubiously positive capability: giving a strong bid to risky asset types.