Overall, the key supports to the economy and markets remain in place. However, valuations also remain very elevated, especially in the fixed-income market. With interest rates remaining stubbornly at levels that are well below reported or expected inflation, fixed-income returns will continue to be lackluster at best. But exceptionally low interest rates continue to be a bulwark against any significant correction in the equity markets.
We remain moderately overweigh equities. But in such a high valuation market, with inflation signals flashing warning signs, Fed policy possibly being in transition, and growth likely peaking, we continue to believe this is not a time to be aggressively positioned in the portfolios.
Some speculative dynamics of the market, such as “meme” stocks and cryptocurrency trading, are abating. Security selection, focusing on quality, durability and solid fundamentals regardless of sector is expected to prevail as the second half of the year unfolds.
Outside the U.S. equity market, the developed markets, particularly Asia and Europe, appear to be in a better position than the emerging markets. Emerging markets may be challenged by rising interest rates, a stronger dollar and declining commodity markets.