Global Asset Allocation Views – Q4

Global Asset Allocation Views Q4 2020

3rd Quarter Recap

  • S. stocks have made up significant ground since the March lows, even hitting all-time highs. Vaccine outlook and better therapeutics had been a key driver during the quarter.
  • Markets appear to have turned a corner and entered a new bull market. Similar to 2009, we could expect increased volatility with a few 5-10% pullbacks.  The downside view is policy mishaps push us back into a recession.
  • Stocks continue to look attractive compared to bonds. The earnings yield on stocks is well above what one could expect to earn with the 10-year yield.
  • US consumers remain resilient with retail sales increasing and consumer sentiment indicators perking up.
  • The housing market remains robust. Supply of homes is dwindling, and new home sales have jumped to the highest point since before the 2008 Financial Crisis.
  • Corporate earnings were better than expected and companies provided above consensus forward guidance.

4th Quarter Outlook


  • Economic expansion continues to pick up, but tail risks are elevated going into the 4th quarter
  • The Fed will continue to ease as they track average inflation well above the 2% level they had targeted in the previous regime
  • The dollar has likely pivoted and is now depreciating versus a basket of currencies
  • Risks in the credit market are more than offset by central bank support providing ample liquidity
  • Equity earnings continue to improve, and we continue to support favoring a global allocation to equities
  • Cyclical sectors lead, but a full “value” rotation is unlikely until rates rise 


  • Valuations remain stretched and markets are expecting a strong earnings recovery in 2021. Without a strong earnings recovery in 2021, these valuations may be viewed as too lofty.
  • Employment continues to improve from the spring where we had temporary layoffs due to lockdowns. Lately, however, we are experiencing permanent layoffs which will be harder to offset .
  • A lack of fiscal stimulus is beginning to show up in economic data. The economy will weaken without another deal to aid companies/individuals hardest hit by the lockdown.
  • We are entering fall/winter and with individuals moving inside we could expect a pickup in covid-19 cases.
  • Volatility markets are pricing in a more turbulent November. During most election cycles volatility is highest in October.  Markets appear to be pricing in an uncertain election that takes weeks to find out the outcome.
  • Low rates will mean that Treasuries will provide less protection during market downturns.

Allocation Updates 

  • I will look to trim back Technology and reallocate to cyclical sectors. Technology has run up relative to the market over the past 5 years and to reduce risk I want to pare back some of the exposure.
  • We are overweight Cash, Technology, Emerging Markets, Industrials, and Managed Futures. Continued support for growth and large cap with the beginning of a small tilt towards cyclicals.
  • We are underweight Energy, Europe, Treasuries, Small Cap, and Utilities. Defensive areas of the market are overvalued.  I view dips in the market as a time to add to positions.

Written by:  Antonio Belmonte, CFA, Chief Investment officer

These are the opinions of Antonio Belmonte and not necessarily those of Cambridge, are for information purposes only, and should not be construed or acted upon as individualized investment advice.  Investing involves risk.  Depending on the types of investments, there may be varying degrees of risk.  Investors should be prepared to bear loss, including total loss of principal.  The strategies discussed herein are not designed based on the individual needs of any one specific client or investor.  In other words, it is not a customized strategy designed on the specific financial circumstances of the client.  However, prior to opening an account, Cambridge will consult with you to determine if your financial objectives are appropriate for investing in the model.  You are also provided the opportunity to place reasonable restrictions on the securities held in your account.