CIO Roundtable: Sense and Sensibility for Today’s Markets

The markets seem to be defying logic daily, with nearly every major U.S. and global index regularly hitting new highs. Meanwhile, technology stocks, combined with the four non-tech Magnificent Seven stocks, now capture over 45% of the S&P 500^® Index—and the index represents about 80% of the total U.S. stock market.

Our chief investment officers (CIOs) recently gathered to inject some sensible perspective on how to approach today's markets. Hear our asset class experts’ views on monetary policy developments, favorable risk/reward opportunities and the numerous ways to diversify away from the U.S. large-cap artificial intelligence trade.

Watch the replay. Read key takeaways from the event below.

Key Takeaways

Edited excerpts from our conversation.

Uncertain 2026 Rate Path

I think the rate path for the remainder of this year is fairly straightforward. But for 2026, the FOMC [Federal Open Market Committee] members are widely divided on their rate forecast … Currently, the market is projecting about three rate cuts. We think it'll be fewer—probably just one cut because we believe the U.S. economy is likely to reaccelerate into 2026. There are three very powerful tailwinds:

First and foremost is capital spending, both on the AI side and nontech-related spending.

The second will be the large tax refunds we expect to be coming to consumers, totaling about $700 billion to $800 billion, which would significantly boost consumer spending.

And last but not least is the Fed rate cycle itself. It's well in motion and will further loosen financial conditions.

We're not really concerned about an economic slowdown or recession. As a matter of fact, we are a bit more concerned about the Fed perhaps over-easing and the economy overheating into 2026.

Charles Tan, CIO, Global Fixed Income

The Fed’s Third Mandate?

President Trump's recent appointment to the Fed, Stephen Miran, mentioned a third mandate. He alluded to moderating long-term interest rates—not just controlling short-term rates but now managing them along the entire yield curve, otherwise known as yield curve control (YCC). I think they will pursue this. Why? Because they can lower interest rates and ease the U.S. debt burden. It's kind of a no-brainer. How else can you relieve the debt burden? You'd have to cut defense and Social Security spending by 25% each to really make a dent. And that's a nonstarter.

So there is reason to do it [YCC], but the problem with it—which we learned when we did back in World War II, and Japan and Australia played around with it as well—is when you have inflation and you’re keeping rates down. You're basically bucking the trend, going against the tide. You have to keep buying more securities. It's not sustainable, and economists are worried about that. For that reason. It's proven to be a better antidote in low-inflation environments.

No doubt, [YCC] can be problematic. It eliminates price discovery in the Treasury market if we're controlling rates, and then, of course, it's also open to political abuse. I think [YCC] will be a key focus in early 2026 when the Fed changes regime.

Richard Weiss, CIO, Multi-Asset Strategies

Strong Global Tailwinds

When we look at the landscape for international stocks [developed and emerging], what we see are some really strong, secular drivers. One is that valuations are still attractive, and for growth investors, demographics are pretty positive. We should also see some currency tailwinds.

Then you can bring it down to different parts of the world. If you look at Europe, for example, we are seeing opportunities in the defense sector. Opportunities in commercial aerospace are also very positive. Looking at Japan, digitalization has been very positive, and we see more opportunities going forward. ...

… The same drivers for developed, international markets should be carried over to emerging markets. Digitalization is a very strong one. Everything that's innovation—we are seeing a tremendous amount of investment being put toward it. If you look at China, India, South Korea and Taiwan, we're seeing a tremendous amount of investment being put forward in those markets. And that trickles right into other markets as well.

Patricia Ribeiro, co-CIO, Global Growth Equity

Favorable Risk/Reward in Income and Dividend Strategies

I'd start by saying that you probably always want an allocation here [to dividend and income strategies], just for the diversification benefits. They should provide a ballast to your portfolio during volatile times. Historically, about a third of total stock return has come from dividend yields, so that's something you'd want exposure to. If you happen to be in a down market, that's the only return you'll get. …

When we look at these types of stocks, they look pretty attractive right now from a risk-reward perspective. Looking through our portfolios, you will find us overweight in some of the so-called defensive sectors, such as health care and consumer staples. We're just finding good, high-quality companies there with good risk-reward frameworks. You have to be careful, though, because the fundamentals aren't universally good. There are some value traps that you have to work through.

For the most part, across most of our portfolios, we’re underweight consumer discretionary, technology and a little bit industrials, either due to quality concerns or rich valuations. … What we're really seeing is just those steady, stable companies with GDP-like growth that maybe have a little bit of a hiccup, a product issue or a headwind due to tariffs or consumer weakness or something. They just seem cheap. They should be cheap relative to the big growers, but the disparity is just so wide.

Kevin Toney, CFA, CIO, Global Value Equity

Global Fixed Income Views

U.S. dollar: Year to date, the U.S. dollar has been weaker, down about 9%, but it has been up about 2% since mid-September. Earlier, I talked about our economic outlook for the U.S. being a bit more constructive, with more tailwinds for growth. If our forecast is right, that will lend support to the U.S. dollar's rebound. However, in the longer term, the direction of the U.S. dollar is obviously a function of how we deal with spending, how we tackle the debt situation and how the rest of the world perceives the U.S. government's creditworthiness.

Credit: We still think the broad credit markets are pretty healthy. There are some instances where credit concerns have risen, but these are limited to certain areas more exposed to the weaker parts of the economy. We don't believe there is a widespread, systematic credit downturn on the horizon, at least at this point.

Non-U.S. bonds: You can buy Canadian government bonds and pick up roughly 80 basis points even after hedging back the U.S. dollar, so you don't have any currency risk. If you're willing to travel further to New Zealand, you can buy New Zealand government bonds at the 10-year part of the curve to pick up about 160 basis points over U.S. Treasuries. The best part is that both countries, and most of the developed market countries have a weak economic outlook, so their central banks have more room to cut rates. That means you're not only getting a higher yield but also picking up the potential for capital appreciation.

Emerging markets debt: Emerging markets (EM) debt has also been a very bright spot across the entire fixed-income market. EM hard currency debt has returned around 8%–9% [one year]. And if you're willing to tolerate some of the currency fluctuations, EM local currency debt has returned 15%–16% [year to date]. For example, Mexican government bonds have returned something like 12% [one year]. We think there is still additional upside for owning EM debt, but we need to be careful about the U.S.-dollar situation.

Charles Tan

The AI Trickle-Down Effect

We are obviously seeing opportunities in semiconductors and the entire supply chain, and this is carrying over into other sectors as well. For example, we are seeing more CapEx in utilities. There is a lot more investment because of this significant demand that's coming from data centers, and that also is trickling into opportunities in other sectors like industrials. We're also seeing demand for certain industrial products.

So what we need to do is really look and see how the drivers of growth are actually spreading. Even in the case of AI, maybe some valuations are a bit stretched, but if you look, there is that demand that's being spread out across the whole universe of stocks, and what we need to do is really look for those opportunities.

Patricia Ribeiro

Passive Indexers Beware

First, let me say, [S&P 500 concentration] doesn't concern us per se. We’re mindful of [market concentration], and importantly, we're managing around it. The issue of the market’s concentration is pretty obvious: a handful of stocks, give or take, representing 40%–50% of the S&P 500 Index now—which is no longer a diversified index. It moves more like the NASDAQ. It also skews other metrics like earnings, earnings growth and valuation. So, whereas the S&P cap-weighted now appears very highly valued, it's not necessarily the case. If you look at the equal-weighted S&P or the Russell 2000 [Index], you don't get those extreme valuations.

We're almost in uncharted territory here, and that's why I think people are concerned, because the last time we were here didn't work out so well, in 1999 and 2000. As far as how we're managing it, we intentionally take our positions across sectors, across size and across market factors.

We're not just taking what the S&P is giving us, which is a whole lot of large cap, tech and AI. We're managing the individual exposure. I would say if anybody should be concerned, it's passive indexers in the S&P 500. They are at risk right now with those concentrations. It's not a diversified portfolio. You're making one large bet.

Richard Weiss