We remain constructive on risk assets based on the solid fundamentals underpinning the market: strong global growth, post-pandemic reopening and recovery, strong fiscal and monetary policy stimulus, a solid consumer setup that is expected to unleash pent-up demand. Recent market volatility has been largely due to market rotation out of high momentum stocks and expensive growth stocks along with a tightening in rates and inflation expectations, which should abate going forward.

1. While the economy's progress has exceeded estimates, it remains uneven by region. So far the US is leading the recovery along with China, but this has only recently spilled over to Europe and it will take even longer for it to reach emerging markets more broadly.
2. In the particular case of the US, both Treasury Secretary Janet Yellen and Fed Chair Jerome Powell want to continue with the accelerator to achieve maximum inclusive and broad-based employment. In this regard, maintaining the support of asset purchases and low rates (accommodative financial conditions) is key.
3. The recent debate has been taken up by inflation risk. Rising commodity prices, supply chain problems (such as semiconductors), declining global trade and trade rigidities resulting from Covid restrictions, (as well as a basis for comparison issue), are cited as reasons for rising inflation, many of which have "transitory" characteristics.
4. In this sense, while it is to be expected that the Fed will consider tapering its QE in the coming months as the economic recovery consolidates, this process will be very gradual and it may take many more months before it raises interest rates. An early withdrawal of stimulus today would be totally counterproductive to both the labor and higher inflation objectives that the Fed has been promoting.
5. Risks to recovery are another resurgence of the virus, which is unlikely given the progress of the vaccination process. A credit crunch in a highly leveraged world also appears as a potential problem, but difficult to imagine given the liquidity of the economy. That liquidity is bolstered by the $4 trillion growth in the money supply.
6. While the stock market is at all-time highs, performance expanded beyond a few technology stocks, i.e., market breadth has improved.

Is the market overvalued? Yes, but not as much as in other more speculative cycles and stocks still offer a high upside relative to prime rates. Otherwise, corporate earnings visibility has improved tremendously, with global earnings recovery (MSCI World) expected to be close to 40%.