Tactical Investment Strategy, January 2021

While our first half outlook is geared toward further upside, we expect pockets of weaker data related to a Covid-19 surge, a slower-than-expected pace of vaccinations, and the highly charged political environment. This will weigh on sentiment in the near-term. On the positive side, the long-awaited phase 4 fiscal package was passed in late December, and with the Democrats winning a slim majority in the Senate, the probability of further aid has increased. Our broad positioning and outlook remain the same, with an equity overweight, conviction on the value rotation in equities, and favorable return expectations for international markets vs. the U.S. In fixed income, we expect supply pressures on longer rates, but policy should keep a cap on increases, and spreads should remain stable. Given our expectations of increased volatility in the near-term and outsized returns over the last several months, we have made some tweaks across both our fixed income and equity allocations, taking some gains and modestly reducing risk.