MacroResearchBoard

A Bull Market In Uncertainty Is Not Good For Investors – February 10, 2025

A just-published report updated our global multi-asset recommendations against what has become a more uncertain policy landscape, especially in terms of U.S. trade policy. No doubt, if a major trade war were to occur, it would upend the pro-growth investment climate.

Even absent the tariff threat, there were already reasons to be more cautious about investment strategy than global growth prospects would have implied. Overall, we expect a choppy year for capital markets, albeit with a modestly higher stock/bond ratio. Our base-case scenario is that tariffs will be applied only selectively, but the lingering threat reinforces our recommended overweight stance on cash within a multi-asset portfolio.

Bonds are consolidating after becoming oversold, but another upleg in yields is inevitable assuming the global economic expansion continues. We remain underweight bonds within a multi-asset portfolio, while favoring credit within a fixed-income portfolio.

The threat of tariffs weakens the risk-reward on global equities, although we are maintaining our neutral stance within a multi-asset portfolio for now. We also are maintaining a slight underweight on expensive U.S. stocks given their outsized weight in the global equity benchmark, offset by overweight exposure to emerging market, Japanese and euro area equities. Already, some of the high-flyers that dominated global equity performance in the past two years are losing their luster, to the benefit of some better-valued laggard sectors.