2025 Global Asset Allocation Wall Street Alpha Capture Outlook

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Global Asset Allocation Wall Street Alpha Capture Outlook

Here you’ll find a selection of the most recent research from Invesco Solutions. Read our latest analysis that covers market strategy and opportunities across various asset classes. Markets have regained their composure following the brief volatility spike triggered by reciprocal tariff announcements in early April. Indicators like the VIX and MOVE show that investor sentiment has returned to levels seen before the November 2024 elections. Equity markets are leading the charge, with US and other national indices reaching new highs. While the global central bank easing cycle has begun in earnest, concerns outlined above may dampen further rate cuts in the U.S.

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• The resumption of lower volatility and more narrow credit spreads may continue as economic growth continues to progress and recession risks recede.
• Global economic themes that are most likely to influence our views on portfolio asset allocation over the next 12-to-18 months.
• In other emerging markets, compelling valuations are offset by risks to global trade, keeping us neutral overall.
• Spreading the risk and number of potential opportunities across various asset classes, such as equities, fixed income and commodities.
• Although negotiations continue, U.S. trade continues to be a major source of uncertainty.

Scotiabank® includes The Bank of Nova Scotia and its subsidiaries and affiliates, including 1832 Asset Management L.P. Scotia Global Asset Management® is a business name used by 1832 Asset Management L.P., a limited partnership, the general partner of which is wholly owned by Scotiabank. In extended fixed income, we favor high yield bonds, which, despite spreads of just 300 basis points (bps), offer value with all-in yields near 7.5% supported by strong corporate balance sheet metrics. By contrast, the Federal Reserve (Fed) Chair Jerome Powell maintains a hawkish tone and a keen focus on inflation risks.

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• Canadian equities, driven by strong commodities returns, have outperformed other markets but continued outperformance is difficult to forecast.

Capital market assumptions Q3 2025

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If a recession can be avoided, then equities should grind higher and outperform fixed income, despite lofty valuations, especially if rates remain higher for longer. Artificial intelligence (AI) global asset allocation related investments will likely continue to support a large proportion of cap-weighted indices. Sentiment remains positive in the U.S. as economic growth and labour markets continue to beat expectations. Pro-business policy changes in the U.S. could further bolster growth, even as tariff threats dampen excitement in other markets. The Key Insights and “Big Ideas” are discussed in depth at our Strategy Summit and collectively reflect the core views of the portfolio managers and research teams within Multi-Asset Solutions. They represent the common perspectives we come back to and regularly retest in all our asset allocation discussions.

Multi-Asset Solutions Key Insights & “Big Ideas”

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Interest rates are likely to continue to ease

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In our view:

Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. The value of your investment can go down depending upon market conditions.

The aim of diversification is to reduce the overall risk of the portfolio. Instead, we expect global growth to accelerate over the next year, favouring riskier assets such as non-US equities and industrial commodities. Despite strong recent performance, we remain cautious on US equities due to valuation concerns and economic headwinds. We also see limited upside in USD, gold, and Bitcoin at current levels.

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However, we also believe that inflation is no longer trending down, that some central banks are near the end of their easing cycles and that geopolitical risks remain high. After recent strong gains on some assets, we reduce risk within our Model Asset Allocation by cutting high yield (HY) to Underweight and raising cash to Neutral. We have a modest underweight view on fixed income overall relative to equities as the global economy stabilizes and recession risks continue to recede. While inflation concerns linger, Canadian and U.S. inflation is mostly in-line with long-term targets.