This month's Feature addresses what recent market volatility could mean for investors going forward. We believe that the worst is over for now, but we're also unlikely to see a return to the abnormal calm that preceded it. And a less-consistent correlation between stocks and bonds could pose a greater challenge for managing risk.
We're expecting the strongest global growth since 2011, but this is now being tinged by concerns – amplified by US fiscal stimulus – that we could also see an abrupt return of higher inflation and interest rates. This month's In Context focuses on the implications that higher inflation uncertainty could have on the Federal Reserve's planned "return to normal."
The current expansion is on track to become the longest in modern history, but it's also been the slowest. And although business investment growth has remained lackluster so far, our Thematic spotlight argues that the drought could be ending. This should support our new Business spending rebound theme.
Strong fundamentals continue to support our view that markets will remain robust. We remain overweight to global and EM equities, and keep our overweight to US large cap value, which should benefit from attractive valuations and improving inflation.
We are also making some tactical changes this month. First, we add an overweight to the US materials sector, which should benefit from robust and improving global industrial production. Second, we introduce an overweight to US 10-year Treasury bonds vs. cash as the recent jump in yield has created an opportunity for investors to extend duration. Finally, we increase our overweight to emerging market debt, shifting our preference to USD-denominated bonds. These tactical changes will help us take advantage of opportunities in this unique environment.
Mike Ryan, CFA
Chief Investment Officer Americas
UBS Global Wealth Management