The Federal Reserve has shifted green due to the accommodative stance they have taken on the market, which is exemplified by the recent cut in interest rates. We think this will continue, and as this happens we may see positive reflationary activity.
When comparing the risk free asset to domestic and international equities in the short, intermediate, and long term, it outperforms all three in at least two of the three time frames. This has caused the market sentiment component of our framework to shift to red.
We are currently experiencing a slowdown in the business cycle. Growth is above trend and decelerating, signifying that it may be a good time to overweight low volatility and quality factors.
We currently face the highest probability of a recession since 2007, and we believe the current environment warrants a need for high quality equity exposure, risk mitigation strategies, and diversification within our portfolios.
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