Despite some weakness thus far in August, the combination of continued global economic expansion with moderating inflation has provided a favorable backdrop for riskier assets thus far in 2023. So far, the economy and corporate profits have proved more resilient than the consensus expected. Despite an inverted yield curve and deteriorating leading economic indicators, the US economy has avoided recession. However, we worry that the lagged effects of monetary policy tightening will become a bigger headwind to corporate earnings. With US stock valuations still stretched, we believe some caution is still warranted. In terms of tactical portfolio positioning, we remain underweight to public equities, particularly US large-cap stocks, in favor of increased exposure to fixed income and cash given more attractive yields.
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