Our recommended Asset mix and Sector Strategy recommendations are unchanged. Our asset mix stance is Equity Overweight (OW)/Bond Underweight (UW), and we continue to believe the risk/reward outlook is tilted in favour of equities. In our view, equities are better positioned because the macro supports rising EPS and bonds look unattractive as stronger GDP/rising inflation pushes yields up.
Our asset mix model has been stuck near a maximum equity OW signal since Q3/16. U.S. 10-Yr yields Fair Value stands at 2.9% based on our model (vs. 2.3% currently). We expect the equity OW signal to fade in 2H17, but in the absence of an upward adjustment in yields, the likely result may be a rising Cash signal from the model.