Is it time to abandon assets outside the United States?
The vaccine rollout has been swifter and more effective than we anticipated in the United States. Growth expectations have been revised higher and the S&P 500 has outperformed other equity markets. But we believe now is the time to balance exposure to U.S. stocks with those in Europe, China, and some emerging markets.
Is this as good as it gets?
Growth rates are likely peaking. As soon as this summer, the Federal Reserve may hint at a pivot toward gradually removing accommodation. Strong demand has outstripped supply and some prices are soaring. Near-term inflation fears don’t seem farfetched. So yes, there are reasons to stay vigilant. But we believe that the Federal Reserve is in no rush, and seems ready to let the economy run hot.
Will higher U.S. corporate taxes halt the historic market rally?
Higher corporate tax rates in the U.S. could take a bite out of earnings, but probably not enough to offset the gains from the strong economy, increased government spending and healthy margins. Going forward, we think earnings growth will drive solid equity market returns. And stocks look quite attractive relative to low-yielding bonds.