When the Asset Allocation Committee met back in March, its outlook was optimistic.

Declining inflation had combined with a resilient economy. The coming 12 – 18 months offered the prospect of interest rates being cut against a backdrop of high and stable nominal growth—a very positive environment for risky assets.

The AAC has just reconvened to set out its third-quarter views. The recent cooling in U.S. inflation and jobs data has lifted the final cloud from our economic outlook, but our market and asset allocation views remain neutral at the broad asset class level and tilted to quality.

While we continue to see a reasonable probability of our relatively positive core economic scenario playing out, we also believe that the tails of potential market outcomes, particularly over the next six to 12 months, have become longer and fatter. In addition to the existing risks around stretched valuations on many markets, as well as geopolitical tensions and conflicts, we are concerned that the Federal Reserve may wait too long to cut rates, we anticipate heightened election risk, and we see limited pricing by investors for either scenario.

You can now read the full whitepaper at the link below