Stocks Are Priced for Perfection, Roland Says

Market Risk & Investment Strategy - Markets are showing very little risk priced in, with investors chasing riskier assets like unprofitable mid-cap growth stocks and European equities [3] - High yield bond spreads are below 3%, suggesting markets are calling an "all clear," but the firm believes risk management is crucial [4] - The firm favors high-quality stocks with strong earnings potential, good ROE, and ample cash, finding opportunities in both growth sectors and defensive sectors like health care and utilities [5] - The firm suggests trimming risk and finds elevated yields in bonds attractive, viewing stocks as priced for perfection and bonds as mispriced for a disinflationary, slower growth environment [7] - The firm recommends "legging into duration" in fixed income, focusing on the intermediate part of the curve (around 6 years) with investment-grade corporate bonds and treasuries [17][18] - The firm advises fading the momentum-driven rally in growth stocks and European equities, redeploying capital into high-quality US stocks at reasonable prices [20] Economic Outlook & Fed Policy - US economic growth is not terrible but data has been disappointing, with cracks appearing in the labor market and consumer pressure evident in retail sales [6][7] - The firm believes the Fed may consider cutting rates more aggressively than markets expect later in the year, especially if disinflation continues [16] - Housing and shelter disinflation is slowing, potentially offsetting inflationary impacts of tariffs [12][13] - Elevated mortgage rates (around 7%) and high levels of credit card debt and auto loans are creating a self-limiting mechanism that could push growth lower [14] - The firm anticipates bond yields falling across the curve as growth decelerates and disinflation sets in [23]