Source: Bloomberg. Data as of June 30, 2024.
We are concerned about economic growth prospects outside the U.S. Government spending has been an extra boost for U.S. growth, but an absence of such fiscal generosity in other economies is already showing. Many developed economies are wrestling with a more acute manufacturing slowdown than the U.S. Other sources of growth such as consumption and exports are also under pressure outside of the U.S. In response, major central banks such as the European Central Bank and the Bank of Canada have already initiated interest rate cuts to loosen monetary conditions.
Given these conditions and geopolitical risks, we are largely neutral to equities across regions. In the U.S., we are concerned about the concentration of gains in the technology sector, where a handful of stocks have largely driven market returns. We also worry about the rich valuations of U.S. equities relative to their profit outlook. On the other hand, we think the equity rally may broaden out to sectors that have mostly been stagnant for many quarters. We think a Fed rate cut may give a much-needed boost to these sectors. We also reduced our bets on emerging market equities as our data shows rising growth concerns. Within fixed income, we think core credit dominated by government issuers offer more value over risky credit such as high-yield that are trading at tighter spreads. We are modestly overweight cash as we look for opportunities to deploy in both equity and fixed income markets.
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