Economic fundamentals remain supportive, with consumer spending, business investment, and a stable labor market helping sustain growth. However, equity markets face increasing risks as valuations remain elevated and market leadership becomes increasingly concentrated in a small group of AI-related companies.

Broader participation has weakened, with small- and mid-cap stocks, value-oriented strategies and equal-weight indexes lagging recent market gains. Potential volatility from U.S. Federal Reserve policy, geopolitical developments, earnings results or the upcoming elections could pressure equities in the near term.

We remain constructive on the long-term outlook and continue to maintain a slight overweight to equities relative to fixed income, balancing opportunity with prudent risk management.

We remain neutral on duration as interest rates have moved higher across the Treasury curve amid persistent inflation pressures, resilient economic growth and expectations for additional Fed rate hikes.

While higher inflation expectations, elevated Treasury supply and ongoing investment in AI infrastructure have contributed to higher yields, we believe long-term rates are likely to remain near current levels rather than move sharply higher. At the same time, significantly higher rates could tighten financial conditions and ultimately slow economic growth, which would help limit additional increases in long-term yields.

Within fixed income, we favor a flatter yield curve and maintain an underweight to shorter-term Treasuries given the Fed’s hawkish stance, while retaining balanced duration exposure as a hedge against potential market volatility.

Credit markets remain supported by a healthy economic outlook, strong demand and generally solid fundamentals, but rising debt issuance tied to AI-related capital spending creates a more cautious backdrop.

While credit spreads widened during the third quarter, they remain historically tight, particularly in investment-grade and high-yield markets.

Attractive yields continue to support our outlook despite recent negative total returns and the potential for additional spread pressure. As a result, we remain moderately overweight credit, with a preference for higher-quality segments that offer compelling income and stronger fundamentals.

We favor securitized credit, investment-grade corporates, investment-grade emerging markets debt and BB-rated high-yield bonds. We also prefer collateralized loan obligations (CLOs) over leveraged loans and remain underweight lower-quality credit, where fundamentals appear weaker.