The investment research and managed accounts provider took overweight positions in both asset classes, emphasizing that quality companies should also benefit from a soft landing scenario.
“Given that parts of the stock markets are expensive, you really need to focus on those types of companies, in a downturn, and those that will continue to perform well in a soft landing scenario,” co- founder and chief investment officer of Zenith. David Wright, said.
He added that stock quality is represented by strong balance sheets, stable earnings, growing earnings and low debt levels.
Global small caps, meanwhile, have enjoyed attractive valuations for some time.
“On the sentiment side, the price momentum and growing appetite for risk is evident, which is positive,” Wright said.
Assuming a soft landing as a base case for a while, Zenith noted that such outcomes are “actually quite rare” and carry risks, according to Damien Hennessy, head of asset allocation.
Despite a “very aggressive rate cut cycle in the United States,” Hennessy said, markets are reconsidering the likelihood of further cuts, given the resilience of the economy.
“We’ve had a soft landing as a base case over the last 12 to 15 months probably and that seems to be playing out,” he said.
American election
According to Zenith, a split in Congress is the most likely outcome of the US elections, regardless of whether Donald Trump or Kamala Harris wins the presidency.
Hennessy noted that under a Trump presidency with a divided Congress, bond yields would likely peak, stocks would improve and the U.S. dollar would see an uptick. In contrast, a Harris presidency would still support improving stocks but lead to lower bond yields and a weaker U.S. dollar.
“There was also talk of a Republican sweep,” he said.
This scenario assumes a mix of policies including higher tariffs, expanded tax cuts, continued fiscal spending, and perhaps reductions in immigration.
“Those three or four policy axes are generally considered inflationary, so the market is starting to price that in as a possibility,” Hennessy said.
“And even though the elections will only take place in 24 hours, the result may not be known for some time. »
