Keeping a relatively neutral position with a view to increase risk early 2020.
Very strong asset class returns during 2019 leaves us cautiously positive towards end-year. Our Asset Allocation View has moved from a slight equity overweight to a neutral positioning during Q4 2019. Equities still seem to provide the best risk adjusted return expectations going forward. However, continued strong performance keeps us from going overweight at the moment. Tight credit spreads do not provide a lot of upside potential, whereas government bonds have some room to tighten further if recession probabilities should increase.
The huge withdrawal of central bank liquidity happening currently is truly “unprecedented” (an otherwise-overused term currently). Despite all of the detailed analysis on the effects of quantitative tightening no one can predict the full impact this will have, but it is certainly not Fed Chair Yellen’s 2017 expectation of “watching paint dry”.
Inflation continues to drive recession worries. US inflation continues to drive recession worries with CPI running at 8.6% YoY in May.