Capital Markets Outlook  |  Q2 2020

Asset Allocations: Staying defensive to start Q2

  Current quarter
  Previous quarter
    Change from previous quarter
Underweight Neutral Overweight
Equity
U.S. large cap
U.S. small cap
U.S. value
U.S. growth
Europe
Japan
Emerging markets
Fixed income
U.S. government
U.S. investment-grade corporates
U.S. mortgage-backed
U.S. floating-rate bank loans
U.S. high yield
Non-U.S. developed country
Emerging markets
Commodities
Cash

Currency views

U.S. dollar versus
Favor other Neutral Favor dollar
  Euro
  Pound
  Yen

We have maintained underweights across equity categories

We enter the second quarter with a reasonable amount of investor capitulation and a washout of sentiment. That is a necessary but insufficient condition to add risk back to the portfolios.


We expect credit markets to recover before equities

Funding markets need to be fixed, and liquidity in the credit markets needs to normalize. The evidence on this front in the final trading days of March was encouraging. We also expect that this credit cycle, even if its timeline is more compressed than previous cycles, will likely follow the pattern in which credit markets recover before equity markets.


We favor an overweight to cash and an underweight to commodities

The key question for financial markets remains whether stimulus efforts are large enough to offset the enormous downside shock to activity and employment.


Markets wrestle with policy versus the pandemic

April 8, 2020  |  Capital Markets Outlook

We are looking for progress in public health and credit market indicators as policy responds to the economic shock surrounding the pandemic and efforts to contain it.

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