SFY - Asset Allocation Committee Outlook Q1 2021: A Tentative Recovery

• Investors appear almost universally to be pricing for an early-cycle mix of low interest rates and ongoing support from both monetary and fiscal policy, combined with the release of pent-up demand from consumers and manufacturers.
• Short-term stumbling blocks are not confined to the ongoing pandemic: there are underappreciated political and geopolitical risks, too. Even as it gains pace, economic recovery will likely be uneven.
• And recovery may bring its own risks: stretched valuations in many parts of the market could snap back if interest rates rise faster than expected, and the growing crowd of consensus trades could be a recipe for volatility during the first half of the year.
• The Asset Allocation Committee downgraded its view on investment-grade fixed income for the second successive quarter, from neutral to underweight, and upgraded its view on emerging markets equity from neutral to overweight.

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