The investment clock has slipped back into the overheat quadrant, after one month in recovery, because inflation readings have increased. But the truth is more that the clock is hovering around neutral because economic data lacks conviction.
Among the lacklustre readings, our growth leading indicator has improved but remains negative. While our growth trend indicator is positive, the US component has slipped to neutral. The inflation reading has risen because of higher oil prices. Even if commodities remain at current levels, headline inflation is likely to rise through the remainder of the year.
Our asset-allocation positioning reflects the murky economic backdrop and we maintain a broadly neutral stance on risk assets, although we prefer commodities over equities. As the Federal Reserve has signalled a possible mid-year increase in rates, we have maintained our negative stance on fixed income.
Within equities, our largest regional position is an underweight to emerging markets because economic fundamentals look weak. We have a positive stance on European equities because they have underperformed of late, while we are neutral the US and Japan. Among sectors, we added to technology out of healthcare, which faces uncertainty ahead of the US election. The US dollar remains our preferred currency and is balanced with underweight positions in the Australian dollar and sterling.
#FOTO:306865781:400#Past months can be subject to revisions.
The investment clock approach generates growth and inflation readings based on past trends and current momentum of lead indicators, to help forecast how the global economy may perform in the coming three to six months. The growth reading sets the relative weighting of cyclical and defensive assets (north-south on the clock diagram). The inflation reading sets the weighting of financial assets versus real assets (east-west).
Originally published by Fidelity