We are reaching out with our latest market review and investment outlook commentary. The linked file includes a review of recent financial market results, our assessment of the macro backdrop, and an update on portfolio strategy. The piece also includes a discussion of the current level of concentration in the US equity market. Here’s an overview:
The global stock market rally has continued thus far in 2024, though the recent bout of volatility serves as a reminder how quickly sentiment can shift. As a result of continued leadership from mega-cap technology stocks, the US equity market is the most concentrated it’s been in decades.
The US economy has been more resilient than economists expected. In contrast to previous Fed tightening episodes, households and the corporate sector have been protected from Fed rate hikes by locking in low rates on 30-year mortgages and longer-term corporate bonds.
However, the treasury yield curve remains inverted, the lagged effects of monetary policy tightening are starting to show, and the economic outlook is uncertain. We think the odds favor a continuation of the current economic cycle, but at a slower pace of growth, while acknowledging that the Fed’s historical track record of achieving a so-called “soft landing” is spotty at best.
In terms of portfolio strategy, we recommend minor tilts away from an appropriate strategic asset mix and a readiness to take advantage of opportunities that may arise. Tactically, we maintain an underweight position in US large cap stocks while emphasizing reasonably priced high-quality stocks. In our view, heightened valuations and greater concentration pose a risk. We recommend leaning into small cap stocks that are trading at more attractive valuations. We also remain fully invested in in core/investment grade fixed income given that yields are near the highest levels in 15 years.
Click here to read the full commentary.