4Q 2019 market outlook in 3 charts
Yield can still be found in a low rate, low inflation and low yield environment.
The rhetoric of major central banks has continued to be dovish.
European Central Bank (ECB) President Mario Draghi in June said the ECB could introduce additional stimulus measures if there is no improvement in the outlook for growth and inflation, with rate reductions a possible option1. US Federal Reserve Chairman Jerome Powell remains mindful that monetary policy should not over-react to any individual data point or short-term swing in sentiment as he and his colleagues consider the call for additional policy accommodation2.
Against this backdrop, investors may want to diversify3 their sources of income instead of simply holding cash or government bonds.
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In our multi-asset solutions (MAS) team’s opinion, US equities still emerge more favourable on prospects of higher-quality earnings. And large-cap stocks could stand to gain in the event of a positive outcome of US-China trade talks, if and when this occurs. Europe, Japan and emerging markets seem to remain in the shadow of potential future trade disputes.
Within fixed income, US high yield is preferred, largely on a backdrop of limited supply in credit markets. In addition, US economic growth remains encouraging enough for credit to likely deliver decent returns, with less volatility than equities.
And with persisting market uncertainties in the late US economic cycle, allocating to high-quality, short-duration fixed income could provide a stronger buffer to a portfolio compared with just cash and government bonds.
The case of whether or not central banks deliver on rate cuts remains dependent on a number of possibilities, including the state of global growth and a final outcome of US-China trade tensions. While monitoring these scenarios, a conservative multi-asset strategy with income-generating assets could be a key part of investors’ portfolios.