Tactical Investment Strategy December 2018

Risk assets have progressively worsened in the fourth quarter, as the list of macro concerns continues to increase and negative sentiment becomes more entrenched. The transition of central banks toward balance sheet reductions, or quantitative tightening, has taken away the volatility dampener in the markets, just as fiscal stimulus effects are waning, and growth, trade, and geopolitical concerns are increasing. From an asset allocation perspective, this suggests a period of lower returns and higher volatility, and a more favorable backdrop for high-quality fixed income and defensive equity segments vs. higher-beta allocations.