^{Multi-Asset Solutions Team}

Latest asset allocation views

July 2024

Discover our institutional portfolio management solutions

Asset allocation views: uncharted territory

Global markets enter uncharted territory after developed-market central banks break with historical trends to cut interest rates before the U.S. Federal Reserve. Global growth desynchronization will test market resilience while unlocking new investment opportunities.

Watch video

Download transcript (PDF)

Key global themes

More questions than answers appear on the horizon as desynchronization continues with interest rates as well as economic growth divergence.

Economic environment has supported risk assets, but for how long?

A soft landing for the global economy has been the consensus so far, as global inflation declines, albeit slowly, with positive economic growth. This has been a Goldilocks environment for risk assets with stocks well ahead of bonds year to date.
The European Central Bank becomes the latest developed-market central bank to break with historical trends to cut rates ahead of the U.S. Federal Reserve (Fed), joining Canada and Switzerland with a 25 basis point cut.
The Fed will be carefully monitoring key economic markers, while inflation will be the primary focus. Jobs data and economic growth will also be measured, as it seeks to strike a balance between cutting rates too early and waiting too long, which could necessitate deeper cuts.

How long before cracks appear?

Our outlook remains generally positive—reflected in an overweight in equity versus fixed income—but we remain alert to potential—hidden—market weakness.
A string of disappointing economic data includes the lowest job openings since 2021 and GDP growth revised lower. This signals that growth in the United States, while still positive, may be weakening.
Valuations are elevated relative to historical levels, heightening the risk of deeper drawdowns in a slowdown. On their own, however, valuations aren’t typically a good predictor of near-term market movements.

U.S. dominance continues for now

The first half of the year has been defined by broad market participation, coupled with continued U.S. leadership. However, should economic trends continue to deteriorate, allowing for an accelerated rate-cutting cycle, certain assets with larger valuations cushions are set up well to outperform.
European equities, currently undervalued, have seen earnings beat expectations with improving forward-looking projections. Stabilization in China could also present an opportunity going forward.
U.S. small-cap equity valuations are near all-time lows relative to large caps, while investment-grade bonds have been challenged since late 2021. U.S. rate cuts could benefit both and the prevailing economic environment will determine which of these assets outperforms.

_{Source: Manulife Investment Management, June 30, 2024. These views are updated on a quarterly basis. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. No forecasts are guaranteed.}

Active asset allocation views

Asset class overview

While we continue to favor equities over fixed income, this view has shifted toward neutral relative to our view last quarter. Corporate earnings growth has remained resilient amid a higher interest-rate environment; however, some economic data has softened such as unemployment and GDP growth.