In Short: Federated adds to equity overweight

03-22-2017

Viewing the recent market pullback as an opportunity, Federated this week nudged up its equity overweight in its PRISM stock-bond portfolio model to 30% of maximum. The change was funded by lowering the allocation to Treasuries a notch to a near maximum underweight on our belief the bias on rates—the past week’s bond rally notwithstanding—is likely to be up over the course of this year and into 2018. The moves are consistent with our views on the stock market as laid out in Steve Auth’s latest piece. Suffice to say, we view last week’s relatively dovish Fed meeting, the positive outcome in the Dutch election, improving prospects for the same in upcoming French elections and President Trump’s pro-growth agenda (the messiness of the health-care debate aside, we still expect to get corporate tax reform, regulatory relief and ramped-up infrastructure spending in a reasonable period) as reasons to be optimistic on stocks for the longer term. So while things may be looking ugly for stocks at the moment, we would not be surprised to see a positive reversal from current oversold levels going into summer. As we have been saying, we believe we are in “buy the dips’’ rather than “sell the rallies” market.