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

We maintain a pro-risk stance (OW equities, N credit, UW bonds) and continue to prefer procyclical areas across and within assets. Reflation optimism has picked up materially so far this year, supported by US fiscal stimulus and a commodity rally.

We remain OW in equities, equity risk premiums should still help cushion rising bond yields. We prefer non-U.S. stocks to U.S. stocks, reflecting our preference for cyclical, value and short duration stocks .

We continue to UW on bonds. While for most of the past year real yields have moved in the opposite direction of inflation expectations, they have risen together YTD. As markets are moving from fading deflation risk to pricing in excess inflation, rate volatility has increased.

We remain Neutral on IG credit and prefer HY fixed income. High quality, long duration credits have little return potential. While the search for yield is softening with the massive bond sell-off, yield levels remain low, which should continue to push investors to move up the risk curve. Strong growth should also keep default risk in check in the coming quarters.

We remain bullish on bullish commodities. Commodities have been one of the best performing asset classes to date. Inventories remain low and most commodity markets are in deficit. We also see increasing value in commodities from a strategic asset allocation perspective: in periods of high and rising inflation, commodities can be a good diversifier for balanced portfolios; when stocks and bonds decline together due to inflation risk, commodities have often decoupled and offered attractive carry.

The dollar will continue to face key challenges in the coming months, given the higher projected US deficit, and rate differentials are no longer favorable to the dollar .It is the expectation of an economic reflation process, which makes us lean towards the dollar remaining weak in 2021 and the inverse relationship we have been observing between the dollar and equities remaining strong.