Capital Markets Outlook | Q2 2020
Asset Allocations: Staying defensive to start Q2
|
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 viewsU.S. dollar versus |
Favor other | Neutral | Favor dollar |
|---|---|---|---|
| Euro | |||
| Pound | |||
| Yen |
We have maintained underweights across equity categories
We enter the second quarter with a reasonable amount of investor capitulation and a washout of sentiment. That is a necessary but insufficient condition to add risk back to the portfolios.
We expect credit markets to recover before equities
Funding markets need to be fixed, and liquidity in the credit markets needs to normalize. The evidence on this front in the final trading days of March was encouraging. We also expect that this credit cycle, even if its timeline is more compressed than previous cycles, will likely follow the pattern in which credit markets recover before equity markets.
We favor an overweight to cash and an underweight to commodities
The key question for financial markets remains whether stimulus efforts are large enough to offset the enormous downside shock to activity and employment.
Markets wrestle with policy versus the pandemic
April 8, 2020 | Capital Markets Outlook
We are looking for progress in public health and credit market indicators as policy responds to the economic shock surrounding the pandemic and efforts to contain it.
More »