We are focused on and conscious of the risks posed by geo-politics and cautious as markets continue to show signs of strain. US equities, particularly large-cap technology, have weakened, market breadth has narrowed, and fewer sectors are holding up in established uptrends. At the same time, long-term interest rates remain elevated, which continues to tighten financial conditions and create a more difficult backdrop for growth-oriented assets. In response, we have maintained a defensive posture, with elevated cash and short-term liquidity, reduced exposure to areas showing technical deterioration, and a willingness to become more defensive if conditions worsen. Our focus remains on protecting capital rather than reacting to short-term headlines or chasing brief rallies.
At the same time, the broader leadership themes we have been emphasizing remain in place. We continue to see international equities as constructive on a longer-term basis despite recent pullbacks, and we still view commodities as an important area of leadership. Energy, gold, copper, and other hard assets continue to stand out, while fixed income remains less attractive in an environment where long-term yields are moving higher. For now, we believe patience and selectivity remain critical. We are monitoring breadth and technical conditions closely, and we want to see more convincing evidence of improvement before putting meaningful new capital to work.
Key Takeaways:
Positioning remains cautious
Market breadth continues to narrow, and we remain cautious in the current environment. We are maintaining elevated cash levels and remain prepared to position portfolios more defensively if conditions weaken further.
US equities weaken, led by large-cap technology
The S&P 500 and Nasdaq 100 remain under pressure, with weakness now extending across the largest technology stocks. The rollover in the Mag 7 reinforces our more cautious view on US growth and technology exposure.
The case for international equities remains intact
Although international markets have pulled back, our broader view remains unchanged. We continue to see developed markets, Japan, and emerging markets in the early stages of longer-term bull markets, and we remain committed to our international positioning.
Commodities continue to lead
Commodities remain a leadership area. Energy appears to be in the early stages of a bull market, while gold, copper, and other hard assets continue to reinforce our view that commodity leadership remains firmly in place.
Higher long-term interest rates remain an important headwind
We continue to believe interest rates bottom in 2020 and that long-term bond yields trend higher. This backdrop continues to pressure risk assets and remains a key reason we maintain an underweight position in fixed income.
New buying requires stronger confirmation
Current conditions do not yet support meaningful new buying. A single positive day does not alter the broader outlook. Before deploying additional capital, we want to see stronger technical confirmation, including improved breadth and more durable upside participation.