Schroders Investment's multi-asset investment team indicated that the risk of a U.S. economic recession remains relatively low, with the market's primary concern currently centered on excessively high stock valuations. Consequently, while maintaining a positive outlook on equities, the team recommends balancing investment portfolios through diversified asset classes such as gold. Despite recent market volatility, their favorable view on gold remains unchanged. In an environment characterized by policy uncertainty, fiscal fragility, and investor skepticism regarding the long-term status of U.S. Treasuries and the U.S. dollar, gold serves as an excellent tool for risk diversification. Furthermore, the team has also turned more optimistic regarding oil prices.
From a cyclical perspective, the macroeconomic environment remains moderate. U.S. fiscal stimulus measures persist, and against a backdrop of sustained low local unemployment, interest rates are gradually declining. Although they are closely monitoring for any potential weakening in the U.S. labor market, the current balanced state of "low layoffs and low hiring" continues, suggesting the risk of a U.S. recession is not significant. The key challenge at present lies in elevated stock market valuations. Therefore, Schroders is reallocating its long-term overweight position in the MSCI World Index towards value stocks outside the United States.
In the bond market, Schroders Investment believes U.S. bond valuations remain unattractive. The front end of the yield curve already reflects expectations for significant interest rate cuts, and inflation expectations are extremely subdued, which contrasts with trends in other major bond markets where central bank easing cycles are nearing their end. Regarding credit markets, the firm holds a cautious stance on U.S. credit but is more optimistic about European credit, leading to a neutral overall view on credit assets.
In terms of currency strategy, Schroders is bullish on the euro's prospects, as liquidity expansion and monetary policy divergence—with the European Central Bank potentially pausing rate cuts—provide support for the euro. Additionally, if Germany's fiscal stimulus plan becomes clearer, it would further benefit the euro's trajectory in 2026. In summary, cyclical risks are currently relatively contained, but structural concerns—particularly concentrated AI-driven trading and market concentration issues—are beginning to emerge.
At this stage, Schroders Investment balances its overall optimistic view on equities by allocating to global value stocks, maintaining long positions in gold and oil, and reducing exposure to long-duration bonds and the U.S. dollar. Overall equities: Favorable macroeconomic conditions, sustained corporate earnings growth momentum, and broad fiscal stimulus measures lead Schroders to maintain a positive outlook on stock markets. In the U.S., local fiscal stimulus and expectations for rate cuts support U.S. stock market performance, while low unemployment limits recession risks. Given high valuations in some U.S. stock sectors, investments have been diversified into global value stocks.
Commodities: The outlook has turned positive for commodities due to improving prospects for energy and industrial metals. The energy sector has been upgraded to an "overweight" rating, primarily because of stable demand coupled with minimal new supply and supportive policies, leading to an expectation of upward price momentum. Gold remains the preferred hedging instrument, supported by strong demand from central banks and Chinese consumers, as well as expectations for Fed rate cuts. For industrial metals, signs of supply disruptions support price increases, and with anticipated more concrete policy support from China, tight market supply conditions are expected to persist this year.
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