Three out of the four pangs suggest that we are in a late cycle environment and should maintain a cautious stance that favors high quality and low volatility investment strategies.
US stocks remain highly overvalued, which suggests below average returns for the next 10-20 years. This, paired with the considerable pull back in GDP, leads us to conclude that productive cash flow investment strategies may help buffer this growth slowing trend.
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.
Intermarket relationships continue to indicate a risk averse posture, with defensive factors remaining in favor of offensive ones, and the Utilities, REITs, and Staples sectors winning over the last 12 months by a large margin.
In our opinion, the Federal Reserve should consider cutting rates in order to steepen the yield curve. If not a rate-cut, other restructuring efforts such as an infrastructure bill or fiscal stimulus plan could assuage the current margin we are seeing.
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