Central banks are beginning to remove the crutches that have held up many economies now that post-lockdown recoveries are becoming established: in other words, a tapering of their support is coming.
This is happening at a time when economic data has been disappointing market expectations amid supply chain and labour market bottlenecks and still high Covid infections. More companies have published profit warnings and analysts have been trimming their earnings forecasts.
In the US, contrary to expectations that the end of extraordinary unemployment benefits would lead to a pickup in employment, payroll growth has remained weak.
Despite all this, we remain modestly overweight equities and short bond duration. In our view, there are mitigating factors. Earnings revisions are concentrated in a few industries and economic data surprises are less negative than a month ago. There may be better opportunities to add risk in the near future.
Watch our monthly asset allocation video with chief market strategist Daniel Morris for more analysis and our positioning in the various asset classes.
