The global asset manager’s executive vice president, Dan Farley, said at Morningstar’s recent investment conference that the firm’s view of equity markets had deteriorated even prior to Trump’s series of tariff announcements in early April.
He explained that since last year, key markers, such as earnings expectations, global equity price momentum, and valuations had all been weakening.
As such, SSGA has gradually been reducing its equities exposure since mid-2024, he said, reaching a near-neutral position by early 2025.
“When we look at our portfolios today, we’ve actually moved to an underweight in equities. This is the first time we’ve been underweight in stocks in several years,” Farley said.
“We’ve moved to a neutral weight in fixed income and we’ve been overweight in some cash and some gold, and some diversifiers in the portfolio mix. So very much, I would say, a cautious view from a market perspective here in the near term.”
Farley’s sentiment was reflected in a recent tactical asset allocation note from SSGA, which revealed the firm held an underweight position to US equities, European equities and Asia-Pacific equities as at 9 May.
“Our outlook for equities is poor, driven lower by the deterioration across multiple factors in our model,” the note reads.
“Despite recent positive performance, our price momentum indicators have continued to weaken and have now turned negative. Additionally, we have observed a sharp decline in earnings and sales expectations, which, alongside weakening real gross domestic product (GDP) forecasts, weighs heavily on our equity market outlook.”
Fixed income and emerging markets in the spotlight
Beyond equities, Farley highlighted fixed income and emerging markets as key growth areas for SSGA.
“We do think fixed income has been an asset class that has been underappreciated,” he said.
“I’ve been saying to clients for a while now that the extent that you’ve been underweight fixed income relative to your strategic allocations, now is probably not a bad time to be getting into that. There’s likely to be some volatility here in the near term but definitely something we think can make sense.”
In its tactical asset allocation note, SSGA said it has increased allocations to investment-grade fixed income. Namely, it is considerably overweight in US investment-grade bonds, while underweight in global government bonds and US high yield bonds.
Turning to EMs, Farley shared that the firm holds a modest overweight to the region.
“We think emerging markets are an interesting play at the moment right now,” he said.
Acknowledging that it might seem “counter-intuitive” amid tariff concerns, Farley said SSGA sees opportunities in both debt – thanks to improved credit quality of some sovereigns – and equity, where companies have strengthened their quality and balance sheets.
“There are going to be winners and losers in this tariff operation. We think there’s definitely some equity markets that are going to fare well as we come out of this. Valuations there have been cheap, they’ve been cheap for a while. This could be a bit of a catalyst to move on that,” he said.
SSGA is not alone in its shift away from US equities, with several fund managers stripping back their exposure to the world’s largest economy.
Earlier this month, as markets rebounded, Sam Ruiz, global equity portfolio specialist at T. Rowe Price, confirmed the Growth Equity Strategy had been trimming its US equity and mega-cap tech exposure in response to shifting market dynamics and rising uncertainty.
Already underweight US equities, T. Rowe Price was instead leaning towards Europe and select emerging markets to capture growth. Meanwhile, GQG’s chief investment officer, Rajiv Jain, recently said the firm had become “far more cautious” and was taking a defensive stance on tech.
Similarly, JP Morgan Asset Management’s global market strategist, Kerry Craig, said he viewed the current volatility as a chance to diversify beyond the US. While he described the move as more of a “rebalance” than a retreat, he added: “We would be neutral on the US right now.”
