Multi-asset investments views - How long can the 'Goldilocks' rally last ?

Multi-asset investments views - How long can the 'Goldilocks' rally last ?

Not for Retail distribution: this document is intended exclusively for Professional, Institutional, Qualified or Wholesale Investors / Clients, as defined by applicable local laws and regulation. Circulation must be restricted accordingly

2019 started with a 'Goldilocks' rally: both risky and 'safe' assets posting positive returns. As a result, global equity indices continued to make new year-to-date highs while volatility is falling across asset classes, as shown by G3 rates implied volatilities making all-time lows.

The usual suspects behind this 'Goldilocks' rally are well known. Amid slow growth and weak inflation, DM central banks remained resolutely dovish. This was confirmed by the message from the March FOMC meeting as the median dot plot now indicates no rate hikes this year, and seven officials see the Fed on hold at least through the end of 2020. This dovish central bank positioning is reflected in market pricing, where most policy rates are priced to stay flat for the foreseeable future and even fall in the US. The by-product of this policy stance, i.e. lower volatility and lower real rates, is supportive for risky assets.

While the length of the current equity rally is still within the typical range, historically less than 20% of rallies last longer than 3.5 months. This apparent asymmetry is reinforced by the swift repositioning of investors who started to turn much more bullish. Inflows surged for US equity funds, with 25bn USD inflows in US equity ETFs alone. There have been only a few episodes in the past when US equities experienced inflows at such a strong pace and in a majority of cases these constituted a contrarian signal. Similarly, systematic funds such as CTA or volatility target strategies also increased their equity exposure while Hedge Funds gross risk is back to levels last seen pre-Q4 last year.

This rally is occurring in a context where macroeconomic data have not yet shown convincing signs of rebound. China's economic activity has continued to soften - industrial production growth dropped to the lowest since 2009 whilst property and land markets have not yet recovered. Meanwhile, as mentioned in the March FOMC statement, indicators are pointing to slower growth of household spending and business fixed investment in the US. This reinforces our view that markets are getting ahead of themselves. Therefore, we continue to believe that without a pick-up in global growth, which remains relatively weak, there are growing risks for equities as valuations and positioning are likely to limit returns. We maintain our prudent thus tactically neutral equity allocation.


Markets are priced for recovery … which is not yet visible

Source: Datastream, AXA IM

Our key convictions :

  • Positive on emerging markets assets, both debt and equities as a more dovish Fed, a peaking US dollar and cheaper valuations are supportive
  • We have maintain Euro core government bonds to neutral as a lower growth and falling inflation should cap bond yields
  • We remain negative on EMU equities as the region is leading in the economic slowdown

Our positionning :

  • Positive EM equities vs negative EMU and US equities
  • Positive GBP versus EUR and positive NOK versus AUD and CHF
  • Long equity call options delta hedged to protect the portfolios

Not for Retail distribution: This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.


It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.


Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.


Issued by AXA INVESTMENT MANAGERS PARIS, a company incorporated under the laws of France, having its registered office located at Tour Majunga, 6 place de la Pyramide, 92800 Puteaux, registered with the Nanterre Trade and Companies Register under number 353 534 506, and a Portfolio Management Company, holder of AMF approval no. GP 92-08, issued on 7 April 1992.

In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.