Asset Allocation: Mixed Signals

By Tony Brennan, Chief Investment Strategist

The path economies have been on, of slowing growth and moderating inflation, has come into question of late, in both Australia and the US, as recent economic data have indicated more momentum, and the US election outcome has promised change. Our reading of the economic data at this point is that, while there have been more mixed signals, and conditions may not have been continuing to cool as much, they don’t seem to have been changing direction in any significant way, and the rise in market interest rates in recent months could be expected to exert some restraint again.

As regards the US election, the implications are widely considered difficult to judge at this early point, but given markets have so far assessed them as likely to lift US growth and interest rates, and that there seem other possible outcomes, some unwinding of recent market moves could be a risk on this basis too. Hence, given potential for a pullback in both bond yields and equity indices, we continue to advocate a tactical overweight position in fixed income and moderate underweight position in equities. 

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