Stay with large-caps as volatility picks up
In our view, equity markets have been shifting toward a backdrop of higher volatility and thus more modest gains relative to the last 18 months. After an all-time high in early January, the S&P 500 recently endured its first 10% decline since September 2020 before rebounding sharply in recent days. This pickup in volatility is consistent with the pullback in fiscal and monetary stimulus, and the natural development of the economic cycle. Bonds are still unattractive on a relative valuation basis compared to stocks, but market and macro conditions are no longer as lopsidedly in favor of stocks as they have been.