Weekly Strategy Update

Positive economic data and improved corporate earnings have continued to push equities generally higher. Even relatively hawkish testimony by Janet Yellen, chair of the US Federal Reserve, before the US Congress put hardly a dent in this uptrend. It just seems to confirm that the reflation trade, which should result in higher growth, higher inflation and higher corporate profits, is the best position for many investors to be in. We do not agree. We think equities are somewhat richly valued and that market volatility is extremely low given the pervasive political and economic risks. We have not changed our cautious asset allocation.