The purpose of this article is to inform you of recent transactions within the Global Asset Allocation Strategy. As discussed during the First Quarter Market Update, the strategy has been considerably overweight equities in recent months. We have been believers in the economic recovery and our base case scenario projects a return to normal life (or close to it) this summer – at least in most of the U.S. As the economy reopens, economic data should continue to improve and we should see better news headlines ahead.
However, as the stock market continued to climb and the equity overweight within investment portfolios became even more pronounced, it became prudent to reduce equity exposure in many cases. Specific transactions within accounts may have varied slightly, but equity trims were predominantly made to domestic small and mid-sized companies. In general, these companies have increased the most since the cyclical rally began in the fall and were the most overweight positions within investment portfolios. Proceeds were invested mostly in short-term, high-quality bonds and cash. The bond portfolio holds mostly shorter-term bonds and is positioned for rising rates.
We continue to favor stocks to bonds given the historically low-interest-rate environment and expected longer-term returns going forward. However, equities are a volatile asset class and have appreciated substantially since March 2020 with only minor corrections along the way. It is times like these when we need to be on our toes and think opportunistically about market volatility.
Historically, markets have been weaker during the summer months, which is why some investors have coined the phrase, “sell in May and go away”. Seasonal stock patterns are largely unreliable for any given year, but trends have emerged historically and cannot be totally ignored. The recent rebalance allows us to be more opportunistic if a large enough correction were to occur. As anticipated, we are seeing inflation pressures bubble to the surface, which could continue to push interest rates up and weigh on stock prices, which is completely expected.
As always, please contact us with any questions! We would be happy to discuss our thoughts on any of the recent transactions in greater detail at any time!
All the best,
The Alliance Private Wealth Team