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Economic and Market Commentary

Weekly Market Update

Our Asset Allocation team comments on what’s moving markets and how the PIMCO GIS Dynamic Multi-Asset Fund (DMAF) is positioned.

Foreword

Access these views via the Dynamic Multi-Asset Fund, a dynamic fund designed to deliver across market environments and help investors navigate the toughest market situations.

From the desk of Our Asset Allocation team, Friday 17th May 2024.

Leaning Forward

Last week began with a flashback to 2021: a Twitter post from a long-dormant account (a picture of a man leaning forward in his chair while playing a video game, which is meant to convey that “things are getting serious”) sent meme stocks briefly surging again on retail flows. But the jump was short-lived because, unlike 2021, retail investors no longer have excess fiscal stimulus funds to spend, and the meme-stock companies themselves have learned to take advantage of opportunities to raise capital – hence they promptly sold shares into the valuation jump.

Still, it brought to mind some of the behavioral effects that drove meme traders: the economic anxiety, herding, and willingness to risk all for rapid gains, in a labor market that had not yet tightened, and where rates were still lower. Having the safety of a Fed “put” in place had encouraged traders to lean forward, but it is now more dangerous to lean too far.

Putting aside the meme-stock moment, there were other pieces of information that made us lean forward as well. First and foremost the latest U.S. inflation (CPI) release, in which slowing headline and component numbers supported our view that we are past the inflation “bumps”; alongside continued deterioration in economic surprise indicators incorporating retail sales and other macro releases. This has largely taken the risk of a return to a hiking cycle off the table, without yet returning any sense of urgency to cut rates. Meanwhile, the recovery in Europe is continuing at a gradual pace.

Second, earnings calls (notably from Walmart) that showed ongoing fundamental health among consumers – even if discretionary spending is slowing. Companies have indicated that consumers are increasingly selective and value-focused, again a healthy normalization. Finally, the stimulus push in China (with new policies to lower mortgage costs and allow state-owned enterprises to purchase unsold homes) is a concrete (if modest) step to breathe life into the property market, and hence decreases the risk of a negative growth shock across the rest of the world and Europe.

Put together, these data continue to support a position that leans forward into risk, albeit prudently.

In DMAF portfolios, our equity positioning remains constructive, and we have continued to diversify our factor exposures to quality, value, momentum and growth. In a steady growth environment, we are also leaning our fixed income exposures slightly forward into high-quality credit as an additional source of equity beta, maintaining liquidity and seeking attractive spread.

Asset Allocation team

How can DMAF benefit investors in today’s uncertain markets?

  1. Provide optionality
  2. Enhance returns
  3. Control risk

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Disclosures

Data as of 17th May 2024 unless otherwise stated.

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OUTLOOK
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