Multi-Asset Perspectives

As U.S. COVID-19 cases increase, so does the risk that economic recovery decelerates. We think policy makers will do what it takes to sustain the recovery, and therefore continue to prefer U.S. equities over bonds.

Despite our expectations for a dreadful drop in 2Q20 output, we believe a recovery will commence in 3Q20 and lead to a meaningful acceleration beginning in 2021. Accordingly, stocks still look more attractive to us than bonds.

We are still overweight U.S. large caps, believing winners will win until a broad-based economic recovery takes hold. Our preference for investment grade U.S. bonds remains; also, we now see opportunities among high yield bonds.

Recent market dislocation has created an opportunity to reposition portfolios to capitalize on the new business cycle.

We consider the coronavirus outbreak a temporary shock, inducing a technical recession but not fundamentally impairing productive capacity. Considering this and an expanded equity risk premium, we see stocks as more attractive than bonds.

We continue to believe the economies of China, Europe and Japan are in the process of reaccelerating. Although the coronavirus alters the near-term outlook for Asia, underlying market fundamentals historically have prevailed once an outbreak subsides.

We believe the growth slowdown outside the U.S., which began in 2018, is abating; economic growth is reaccelerating and global equities are at an inflection point.

After a tremendous run in equities and more than a decade without a U.S. recession, we expect muted, albeit positive forward returns. Our portfolio overweight to equities continues to be fortified by high-grade fixed income.

Global monetary policy easing is beginning to revive manufacturing, lowering the risk of a U.S. recession within a year. We therefore retain a modest overweight to stocks.

We view stocks as more attractive than fixed income given our outlook for low, slow, but still positive economic growth.