Daily Spotlight

Value Stocks in Performance Lead

We have three strategic asset-allocation models, targeting risk tolerance: Conservative, Growth, and Aggressive. We make tactical adjustments to the models, based on our outlooks for segments of the capital markets. Through August, stocks have taken the performance lead over bonds as long-term interest rates have risen to five-year highs. From an asset-allocation standpoint, our Stock-Bond Barometer model still sees both asset classes near fair value, with an edge to bonds as the benchmark 10-year T-bond yield has topped 5%. Tactically, we have a bullish outlook and think that well-designed, diversified portfolios can benefit from trends that indicate core long-term U.S. GDP can grow at a 1.5%-2.5% rate over the next few quarters; the Fed can maintain control of inflation into 2027; and corporate profits will grow at a double-digit pace on average during that time. We are market-weight on large-cap stocks at this stage of the market cycle. We favor them for growth exposure and financial strength, as well as exposure to the Information Technology (IT) sector; small- and mid-caps offer better valuation. Moving to the international arena, global stocks turned in an impressive performance in 2025, although long-term trends favoring domestic stocks are starting to re-emerge. But international stocks still offer favorable near-term value, and we target 15%-20% of equity exposure to the group. In terms of growth and value over the longer term, we anticipate that growth (led by the IT sector) will top returns from value (led by Energy, Real Estate, and Materials) due to favorable secular and demographic trends. Value has taken the lead in 2026, after lagging for the past five years, and appears well positioned for performance in the near term with longer-term interest rates at elevated levels....  T-bond yield has topped 5%. Tactically, we have a bullish outlook and think that well-designed, diversified portfolios can benefit from trends that indicate core long-term U.S. GDP can grow at a 1.5%-2.5% rate over the next few quarters; the Fed can maintain control of inflation into 2027; and corporate profits will grow at a double-digit pace on average during that time. We are market-weight on large-cap stocks at this stage of the market cycle. We favor them for growth exposure and financial strength, as well as exposure to the Information Technology (IT) sector; small- and mid-caps offer better valuation. Moving to the international arena, global stocks turned in an impressive performance in 2025, although long-term trends favoring domestic stocks are starting to re-emerge. But international stocks still offer favorable near-term value, and we target 15%-20% of equity exposure to the group. In terms of growth and value over the longer term, we anticipate that growth (led by the IT sector) will top returns from value (led by Energy, Real Estate, and Materials) due to favorable secular and demographic trends. Value has taken the lead in 2026, after lagging for the past five years, and appears well positioned for performance in the near term with longer-term interest rates at elevated levels.  more

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