» Investment Strategy: Uncertainty! Decision Economics

Investment Strategy: Uncertainty!

Posted August 16, 2016 by rvillareal

Takeaways

  • Cutting through a thick fog of uncertainty, stock and bond markets rebounded smartly in 2Q16 on the back of plentiful central bank liquidity.
  • Limited upside lies ahead for stocks in the face of downgraded growth prospects, extended valuations, and political uncertainty.
  • Though buffeted by declining profits growth and vulnerable to pullbacks, U.S. equities are still the asset class of choice, but emerging markets and commodities are worthy of increased exposure.
  • The rally in global bonds has generally run its course, but bond prices can stay firm in the face of easy central bank policies, tepid economic conditions, and restrained price inflation.
  • The dollar continues range-bound against the yen and the euro, but some slippage is possible in the wake of no action by the Fed and sluggish growth in 2H16.¬† In the wake of Brexit, the sterling weakens further versus the dollar as the economy struggles to avoid recession.
  • Cutting back modestly overweight positions in global equities, while raising slightly exposure to bonds, especially emerging markets in global portfolios.
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