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After a strong first half for equity markets owing largely to central bank policy, asset managers’ outlooks for the next six months are cautiously optimistic, though still dependent on a dovish Federal Reserve.

To put the period since December’s sell-off in perspective, Richardson GMP’s strategy report offers the following thought experiment: imagine being locked away for the past year and emerging to find an inverted yield curve, 10-year Treasury yields down to 2%, and analysts expecting aggressive Fed cuts.

“This information would likely have you thinking we are in a recessionary period, not the 2%+ consensus economic growth or near-record lows in unemployment,” said the report released Monday.

“You would also probably believe that equity markets are in free fall or, at the very least, have taken a hit. Instead, the S&P 500 now sits near all-time highs.”

That’s one paradox investors face going into the second half of the year. The other is the strong performance of both stocks and bonds.

“While not unprecedented, the aggressive rally in both of these asset classes is unusual and highlights a growing divide about the state of the global economy, whereby equity investors seem far less worried about an imminent recession than do their bond counterparts,” wrote AGF Management Ltd. CEO and CIO Kevin McCreadie in a mid-year update.

This puts investors in a difficult position, since both sides can’t be right. Economic growth will have to keep slowing for bonds to remain at current prices, the Richardson GMP report said. “If that occurs, the equity markets will not react kindly.”

However, improved growth or an easing of trade tensions would cause bond prices to fall and equities to rise.

A report from Unigestion said the current situation is similar to the “Goldilocks” period of 2017, albeit with lower growth levels. “[W]ith few signs of imminent recession, muted inflation pressures, and accommodative monetary policy, the global expansion looks likely to continue, to the benefit of risky assets,” the report said.

Mackenzie Investments, in a report released Monday, considered the U.S. slowdown as a normal response to the Fed’s policy tightening over the last couple of years, when it raised rates by 200 basis points.

“[A]fter this kind of tightening, it is perfectly normal for the U.S. economy to take a breather, especially after the fiscal stimulus-induced burst of growth experienced last year,” the report said.

What the Fed does next carries considerable weight. As the Mackenzie report noted, the central bank doesn’t tend to cut only once when it enters an easing cycle. The change in the Fed’s position and its positive impact on risk assets has been a “key support” for the firm’s overweight to equities since early this year.

Richardson GMP said the pace of the slowdown in economic growth may be subsiding, with consensus forecasts for global GDP this year and next remaining stable since April. The firm’s outlook is optimistic, “though we worry that the market may have already priced in a best-case scenario.”

One risk is that the Fed eases less than expected—with that contradiction again, that the risk would be caused by stronger economic data. AGF expects a 25-basis-point cut on July 31 and another one later in the year.

“But if the Fed doesn’t cut as expected, it could result in just the opposite, tipping off another major selloff in the process, even if the reason for not cutting is a stronger economy than expected,” McCreadie wrote.

Cutting too much could also spook markets, though, he said.

For this reason, firms are taking a cautious approach for the coming months. Unigestion said valuations aren’t compelling, with “few obvious opportunities” for investors.

Mackenzie’s base-case for the coming months is a continuation of growth. The firm increased its weight in fixed income assets during the second quarter, as “a Federal Reserve which is moving to an easing stance is likely to be better for fixed income returns than the tightening we saw in the last few years.”

While Richardson GMP warned of a possible correction ahead, the firm doesn’t see the economic cycle ending.

“We’ll likely see a more constrained second half, notwithstanding the dovish leanings of central banks,” the report said. “As such, a more defensive approach should continue to serve investors well amid any escalation in volatility.”

The firm is remaining “mildly overweight” to equities, focusing on Canada and the U.S. It is market weight on international developed markets with no exposure to emerging markets, due to concerns about the age of the cycle and corporate debt.

On fixed income, the firm is playing it “boring,” focusing on high quality and short duration.