• The synchronized global recovery is coasting along with little sign of overheating. This environment of not-too-fast, not-too-slow growth (the “Goldilocks” scenario) should extend the economic upturn, so I still prefer equities over fixed income. However, modest growth means modest capital gains and I see reason to slightly reduce exposure to equities.

• Subdued inflationary pressures will permit the Federal Reserve (Fed) to raise policy rates gradually, and the European Central Bank (ECB) and the Bank of Japan (BOJ) to reduce monetary stimulus without haste. The policy outlook supports risk-taking.

• True - valuations are tight across risk assets. Yet risk-free assets themselves are not particularly cheap and are also vulnerable to disruption from central bank policies. I prefer credit to government bonds.

• In the current low but stable growth environment, investors should consider focusing on higher-income assets. This implies a preference for high-dividend equities, high-yield credit, and emerging market debt. I would, however, take consideration of the risk that central banks raise rates faster and sooner than the market expects.

• European equities should outperform U.S. equities because of strengthening growth, more accommodative monetary policy, and diminishing political risks. By contrast, heady valuations mean that European credit is marginally less attractive than U.S. credit.

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