We are maintaining our risk-on allocation, given strong global growth as pent-up consumer demand is unleashed during the post-pandemic recovery, and monetary policy remains accommodative.

We continue to see the global economy pick up steam in the second half of 2021, as the headwinds from the pandemic subside and activity in the services sector returns to normal.

We believe the market’s reaction to reflation went too far, with reopening and reflation themes driving stocks and long-term bonds to January levels (the peak of the pandemic). Therefore, we expect the reflation trade (cyclical stocks, bond yields, reopening and reflation themes) to rebound as fears of the Delta variant subside, inflation persists, and economic growth and recovery continue at a rapid pace.

As always, we remain overweight (OW) in stocks (with a bias toward value and cyclicals) and commodities. We areunderweight (UW) in bonds. We believe long-term rates are at the bottom of this corrective process. We continue to target levels closer to the 1.6%–1.75% range for the 10-year Treasury by the end of 2021, with the yield curve set to steepen again. While China’s regulatory actions and the spread of the Delta variant have continued to weigh on emerging market assets, in our view, neither factor is likely to derail the solid fundamental picture.

For more information, please see the attached report: Market Outlook, August 2021