Unstoppable equity market rally on soft landing narrative
Continued strength in economic activities
Global Manufacturing PMIs are showing signs of improvement, bucking the trend of contraction over the past year. U.K. is the latest to join the group of countries in expansionary territory (index level above 50). Although this is only one data point and both Europe and U.K.’s GDP growth are still below trend, this could be tentative indication of an inflection point.
Central banks pause on stubborn inflation
In Canada, inflation data came in lower than expected with CPI at 2.8% vs. forecast of 3.1%, marking the weakest pace since June of last year and down from the prior month’s reading of 2.9%, helping the Bank of Canada’s case to pivot to cutting interest rates in the months ahead. The trend of easing inflation is leading many to predict the easing cycle to start in June as the economy weakens and the labor market cools.
Going beyond the traditional 60/40
Traditional 60/40 portfolios have been effective in taking advantage of the stock and bond correlation which has mostly been negative since the turn of the century. The dramatic rise in inflation and interest rates in 2022 however, created a difficult environment on both stocks and bonds, hence returns in traditional 60/40 portfolios.
