We retain a pro-risk allocation in our model portfolio, given the strong rebound in

global growth, a tailwind from light investor positioning, the cheap relative

valuation of equities, and policy support. The Tech- and Momentum-led

correction over the past week removed some froth from overextended segments of

equity markets, and reset already light macro and systematic positioning even

lower.

The sources of global demand are broadening, from a surge in consumer goods

spending, to inventory rebuilding, a rebound in global capex, and improvements in

the US service sector. This prompted our economists to revise their 3Q20 global

growth forecast sharply higher in recent weeks to 35% ar.

The ‘K-shaped’ recovery, which saw technology surge while cyclical market

segments lagged, was driven by the response to virus and political trends, but is

not sustainable in our view. We expect economic and political convergence of this

‘K-shaped’ recovery, or unwind of the “new normal”, supported by improving

virus trends and narrowing political odds, which began over the past week but has

further to go. On the virus side, new US cases are declining and will likely

continue to fall since there are no large states that have yet to see widespread

outbreaks to significantly boost new cases, fatality rates are falling as treatment

improves, and vaccine availability is likely nearing. While US elections are a risk,

the implications are larger for internal rotation than overall direction, and markets

are already pricing in a substantial risk premium for this event.