Capital Markets Outlook  |  Q4 2019

Asset Allocations: Trimming risk in Q4

The signals of late cycle behavior continue to grow louder. While asset prices might show some resilience, we favor taking lower-than-average risk across asset classes.

  Current quarter
  Previous quarter
    Change from previous quarter 		Underweight Neutral Overweight
Equity
U.S. large cap
U.S. small cap
U.S. value
U.S. growth
Europe
Japan
Emerging markets
Fixed income
U.S. government
U.S. investment-grade corporates
U.S. mortgage-backed
U.S. floating-rate bank loans
U.S. high yield
Non-U.S. developed country
Emerging markets
Commodities
Cash

Currency views

U.S. dollar versus 		Favor other Neutral Favor dollar
  Euro
  Pound
  Yen

We have very slight overweight to U.S. large-cap equity

The current deterioration in economic activity and capital investment is slow moving, in our view. As such, at seems possible that what we see as a gap between risk asset prices and fundamentals could last for a bit longer. At the same time, we take little solace in the bull's argument that stocks are the only alternative. Volatility spikes, similar to those of the fourth quarter of 2018 and of May and August of 2019, are likely to persist and are typical "late-cycle" behavior.

We continue to be underweight riskier parts of the credit market

We have moved from an underweight to neutral in U.S. government fixed-income securities. We are maintaining underweights to investment-grade corporates, floating-rate bank loans, high yield corporates, and both non-U.S.-developed-market and emerging-market debt.

We have an underweight to commodities

During the third-quarter earnings season, which begins in earnest in the third week of October, we will be paying close attention to corporate commentary about growth expectations and capital expenditures.

Facing facts of a creeping contraction

October 15, 2019  |  Capital Markets Outlook

As late-cycle signals grow louder, it's time for tactical caution across asset classes.

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