Tactical Investment Strategy, March 2021

March 17, 2021 — As Covid-19 cases decline and economies reopen, the anticipation of continued economic growth and a renewed boost in consumption has caused a rapid rise in interest rates and increased volatility in equities. Markets have started to price in the risk of the Fed hiking rates sooner than expected in response to an overheating economy. We believe this repricing is mostly done for the near-term, but rates remain vulnerable to additional shocks from further fiscal spending and upside surprises to inflation. The big picture is rates are rising because fundamentals are strong, which keeps us tilted toward risk assets and overweight equities vs. fixed income. We also favor higher-yielding, less interest rate-sensitive fixed income sectors and value-oriented equities.