Stocks fell 3% last week after central bankers reiterated the message that the fight against inflation is not over.
Markets now expect the European Central Bank to hike rates by 75 basis points in September, a previously unthinkable prospect.
As a result, long-term interest rate have increased. In the US, 10-year bonds yield 3.1%, a 0.5% pp increase from a month ago.
We believe interest rates have scope to increase further.
At the same time, risks to company earnings remain elevated.
The stock market has historically performed poorly when the Conference Board Leading Economic Index is falling – as it is now.
Because the building blocks of stock valuations – interest rates, company earnings and the economy – are all heading in the wrong direction, we continue to hold a bearish view on stocks and keep the majority of the portfolio in cash.
The position in $JPST was increased.