Quarterly Investment Outlook – July 2020

Aon’s US Quarterly Investment Outlook provides a summary of the global outlook, US interest rates, inflation hedging, credit views, equities, volatility, and currency.

• Equity and credit markets have roared back as policy backstops from the COVID-19 storm have been very successful so far.  But the pandemic is not over, and economic challenges ahead are huge.
• Our new pandemic scenarios identify different playouts for the global economy and markets and help navigate portfolios better.
• It is hard to pick a big quarrel with the US treasury yield curve, which anticipates little move in policy interest rates for some years.
• Inflation concern is bubbling up given rapid money creation. We do not see the ingredients for much inflation risk today, but sanguine TIPS markets make it a good time for those looking to add protection.
• Credit’s large gains make us more neutral now as a value proposition for the medium-term. Longer horizon investors seeking income should not be deterred, however. Some dislocated credit opportunities and a few areas of private credit are worth a look. 
• Abundant liquidity protects equities, but valuations are too high. We want to take a little less equity risk and re-emphasize portfolio buffers. Value stocks need to wait their turn to shine.
• Central banks’ volatility suppression measures have only partly succeeded. More relative value opportunities will arise if volatility and market dispersion stays higher than normal.
• How much and how soon the US dollar weakens is debatable, but the creeping weakness we are now seeing could well be the start of the downtrend we have been expecting.