US equity market valuations remain in the top decile of historical observations across several different measures of fair value. Therefore, we continue to recommend non-traditional asset class exposures as diversification vehicles (alternative investments).
Market sentiment is negative, as the risk-free asset is outperforming both international and domestic equities as well as high yield bonds in a majority of time frames.We continue to recommend implementing risk mitigation strategies within portfolios.
Gross domestic product, manufacturing, and leading economic indicators continue to slow globally. Slower economic growth calls for more defensive positioning. We expect some sort of rebound in economic data in the first half of 2020. However, we are not sure how substantial any such improvements will be.
Growth has been slowing for over a year globally. We expect central banks and fiscal authorities to ramp up stimulus efforts in the coming quarters, which could correspond with a potential rebound in economic growth.
We think the US Federal Reserve is behind the curve and will have to cut aggressively. It is the first time in 63 years that the US policy rate has been the highest among developed nations. Given the economic weakness, we would not be surprised to see the Fed embark on another round of quantitative easing (QE).
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