Strategy: We leave our overweight in equities and underweight in fixed income recommendation in place. We continue to believe assets and sectors sensitive to the economic cycle should outperform in this late stage of the cycle, characterized by strong economic growth, rising interest rates / bond yields and supportive commodity prices. Seasonal headwinds could offer attractive entry points for new money.
Equities: Strong U.S. Q2 results (10% YOY earnings growth, 73% of companies beating analyst estimates with an average 6.0% surprise) coupled with strong YOY earnings growth around the world (Canada 35%, Japan 25% and Europe 12%) creates an ideal backdrop for a continued “melt-up” in global equities, in our view. Despite the possibility of a small near-term pullback, we believe equities are still under-owned and offer relatively better value than fixed income.