- US markets, especially growth, lead the way globally over the third quarter.
- From a relative strength perspective, our asset allocation models rank the asset classes in order from strongest to weakest as follows:
- Equities: US Large Growth, US Large Value, US Small Cap, International Developed, International Emerging Markets
- Fixed Income: High Yield Corporate Bonds, Corporate Bonds, Treasuries
- From a valuation perspective, US markets remain highly valued according to historically reliable measures of fair value. This implies below average returns over the next 10-12 years.
- Fed policy continues to tighten and will eventually create credit concerns. We expect a yield curve inversion and widening in corporate spreads if the Fed moves too far.
- Economic growth remains robust in the US. We do expect growth to slow from here as suggested by the ECRI Weekly Leading Index.
- Intermarket trends were positive for risk assets until the start of the fourth quarter. Risk aversion is coming to light now with recent volatility.
- We ended the quarter with 2 of the 4 components of our framework flashing red. Since the start of the fourth quarter, intermarket trends are now flashing red as well.
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