Wirehouses, B-Ds React to Ukraine, Dispense Recommendations

Ameriprise Financial

In actions we all hoped would not occur, Russia attacked Ukraine overnight in actions it said were intended to disarm Ukraine's air defense systems. The actions, however, are widely expected to represent the initial stages of a much larger invasion. Overall, we believe such situations furtther justify the need for diversified portfolios. Additionally, we note that the world has been through such periods of geopolitical turmoil in the past. Given the learnings from those prior periods, we do not recommend that investors try to "time" the market via material equity exposure adjustments at this time. ... Russia's ultimate designs on Ukraine are still developing, thus leaving the extent of its military actions against its neighbor uncertain. The repercussions, however, should be expected to run much wider than the regional Eurasia zone of conflict. Russia is a major energy exporter and Ukraine, historically referred to as the bread-basket of Europe, is a major global producer and exporter of grains. Both countries are key suppliers of certain metal commodities which could further disrupt supply chain healing across the globe. Russia is the world's third largest crude oil producer, accounting for 10.5 million barrels per day in 2020, or about 11% of the world's total. The country was also the second-largest exporter of crude oil, accounting for approximately 11% of global crude exports. In 2020, Russia exported crude oil with a total nominal value of about $73 billion, according to Statista. The graphic at right is sourced from the government of Ukraine. Last week we issued estimates of the potential economic impact from higher energy commodity prices should this situation evolve in a negative manner. Our estimates at each level of WTI crude are repeated below. The economic impact of higher energy prices: • At an average West Texas intermediate (WTI) price of $90 /bbl for the full-year 2022, we estimate the drag on U.S. real GDP would be about 0.25% to 0.75% (and incorporated into our current forecast). • If prices WTI were to average $100 to $120, we estimate the negative impact on real GDP would be approximately 0.50% to 1.00%. • At average WTI prices of $120 to $150, we estimate the negative impact on real GDP would be approximately 0.75% to 1.50%. Western sanctions failed to change Russia's course after recognizing two separatist regions of Ukraine and sending military forces into the region under the guise of peacekeeping forces. Russia recognized Donetsk and Luhansk on Monday, and faced a ratcheting up of sanctions against select banks and measures against several oligarchs by the European Union, U.K., and U.S. President Joe Biden continues to suggest that Russia's intentions are to send forces deeper into Ukraine, potentially reaching the Ukrainian capital of Kyiv. In bond markets, inflation concerns also continue to move markets. The inflation breakeven point between 2-year Treasuries and 2-year Treasury Inflation-Protected Securities rose to 3.76% yesterday, up more than half a percent over the past two weeks. We see higher energy prices so far this year as a key contributor, with Nymex crude oil prices approching $100 this morning, up from $74.45 at the end of 2021. Higher near-term inflation readings are likely to keep pressure on the Fed but the negative inmplications of the situation is likely to temper its actions to tighten policy. At the Fed's policy meetings in December and January, the Fed orchestrated an end to asset purchases and put forward guidance back on the shelf. Though markets may view the Fed as behind the curve, our concern centers more on aggressive Fed rate hikes that leave it off balance as the fiscal and monetary effects phase out and the economy converges with slowing global growth prospects in 2023 or 2024 as outlined by the IMF. Fed funds futures currently suggest more than 1.5% of rate hikes this year (note: this was before the Russian attacks overnight), a move that would bring Fed policy remarkably close to the 2.0 to 2.5% neutral policy posture. Should the Fed over-tighten rate policy this rate cycle over the next year or two, we could see a redo of the 2019 intermediate rate cuts to extend growth in our view. In fixed income, some investors began shifting to a neutral duration posture over the past few weeks, which contrasts with our recommendation for a year short of the benchmark 5.5-year duration target for total return investors. We look at the dissonance as a timing issue. Investors managing portfolios day to day and week to week may see some benefit of a longer, index matching target of 6.5 years to increase the diversification role fixed income plays in a portfolio. Rising tensions in Ukraine and prospects that the Fed's aggressive retreat from policy accommodation could lead to a possible repricing of risk assets in the near-term. While possible, we believe the timing may be tricky for many investors and that long-term investors may be better served to position through near-term volatility to above-average growth potential and healthy corporate and consumer fundamentals that we see persisting through the year.

Cetera

We have seen a dramatic escalation in the Russia-Ukraine conflict. The combination of a humanitarian crisis and a potential shock to global financial conditions has sent already jittery investors into an even greater risk-off mode. Equities continued their year-to-date sell-off and safe-haven investments such as gold, the U.S. dollar and U.S. Treasury bonds have rallied. Investors are particularly grappling with what the implications will be for energy, inflation, monetary policy and stock markets. The impact will also be determined by how Western governments respond to the invasion. What could the response look like? Though we don't anticipate Western governments to directly engage Russian military forces, their primary tool is a growing list of sanctions that could impact the Russian economy. Western governments have already imposed some sanctions around Russian oligarchs and related companies, and we expect even deeper ones forthcoming. These could include cutting Russia out of the important SWIFT financial system and sanctioning Russian energy companies. Energy, Other Commodities and Materials Russia supplies about 10% of the world's oil production and about 40% of Europe's natural gas imports. Potentially reducing the country's ability to export energy products has sent global prices to levels not seen in almost a decade. The surge in energy prices is highly unusual during times of geopolitical risks. Traditionally, investors seek safe-haven investments such as U.S. Treasuries, gold or the U.S. dollar. Because energy tends to be economically sensitive, geopolitical risks usually hurt global growth and therefore energy prices. A potential wild card in oil prices is OPEC and specifically Saudi Arabia. If oil prices become too high, the United States may be able to persuade Saudi Arabia to produce more oil to offset some of the lost Russian production. Energy is not the only commodity seeing sizeable gains as a result of the conflict and potential sanctions. Because energy is important in the production of industrial metals and Russia is a significant producer of aluminum, nickel and palladium, we have seen these metals also jump in prices. Russia is also a major exporter of agricultural commodities, particularly grains. According to Gro Intelligence, Russia and Ukraine combined produce 14% of global wheat and supply 29% of all wheat exports. New sanctions could target these industries and push prices higher. Inflation and Monetary Policy This conflict is proving to be potentially both inflationary and deflationary. On one hand, the fallout from this conflict will likely lead to higher food, energy and other commodity prices. On the other hand, rising input costs reduce corporate profitability and reduces overall economic demand. Taken together, these could set the stage for a financial shock. With these new risks abound, there is so much uncertainty of how the economy will move forward. We are at maximum uncertainty around global monetary policy and we could see global central banks slow their planned removal of monetary stimulus in order to keep all their options open. The European Central Bank and the Fed both meet within the next few weeks to decide monetary policy. Stock Markets The uncertainty around the Russian invasion and concerns around the Fed's hawkish pivot to address inflation concerns have pressured equities this year. For example, the S&P 500 is now in correction territory (falling 10% from its peak). Historically, market corrections for the S&P 500 occur about once every 7-8 months and since we hadn't seen one since early 2020, we were overdue. Market reactions to war and crisis events can be tricky and hard to quantify. Each one is also different, happening under different market and economic conditions with different factors at play. If we look at past market reactions, you can see that returns on the S&P 500 differed by event but were largely unaffected one year later. We do note that the 9/11 attack also coincided with the dot-com bubble, so attributing the 1-year return solely to that event might be misleading. There is a lot of anxiety about the current equity sell-off. But it's a good reminder that the S&P 500 has an average intra-year drawdown of 14% since 1980, yet still generated a positive return in 35 out of 42 years. Market volatility is a normal part of investing. Trying to anticipate what may happen is extremely difficult. To further extrapolate the market impact is even harder. With market risks rising, we continue to anticipate more volatility in the near term. Any disruption to current expectations could be a headwind for stocks, and with high stock market valuations at the start of this pullback, this could amplify any volatility. We maintain that diversification is the key in this market. In these times, your financial professional can help you stay focused on your long-term risk and return goals and help you with your personalized investment objectives.

Commonwealth

Markets Hit Hard News of the invasion is hitting the markets hard right now, but the real question is whether that hit will last. It probably will not. History shows the effects are likely to be limited over time. Looking back, this event is not the only time we have seen military action in recent years. And it's not the only time we've seen aggression from Russia. In none of these cases were the effects long-lasting. Context for Today's Events Let's look back at the Russian invasion of Georgia, and the Russian takeover of Crimea, which is part of Ukraine. In August 2008, Russia invaded the republic of Georgia. The U.S. markets dropped by about 5 percent, then rebounded to end the month even. In February and March 2014, Russia invaded and annexed Crimea. The U.S. markets dropped about 6 percent on the invasion, but then rallied to end March higher. In both cases, an initial drop was erased quickly. When we look at a wider range of events, we largely see the same pattern. The chart below shows market reactions to other acts of war, both with and without U.S. involvement. Historically, the data shows a short-term pullback—as we will likely see today—followed by a bottom within the next couple of weeks. Exceptions include the 9/11 terrorist attacks, the Iraqi invasion of Kuwait, and, looking further back, the Korean War and Pearl Harbor attack. With Russia's attack on Ukraine, the markets are reacting. But history shows the effects should be limited, according to Commonwealth CIO Brad McMillan. Still, even with these exceptions, the market reaction was limited both on the day of the event and during the overall time to recovery. In fact, comparing the data provides useful context for today's events. As tragic as the invasion of Ukraine is, its overall effect will likely be much closer to that of the Russian invasion of Ukraine in 2014, when Russia annexed Crimea, than it will be to the aftermath of 9/11. Capital Market Returns During Wartime But even with the short-term effects discounted, should we fear that somehow the war or its effects will derail the economy and markets? Here, too, the historical evidence is encouraging, as demonstrated by the chart below. Returns during wartime have historically been better than all returns, not worse. Note that the war in Afghanistan is not included in the chart, but it too matches the pattern. During the first six months of that war, the Dow gained 13 percent and the S&P 500 gained 5.6 percent. With Russia's attack on Ukraine, the markets are reacting. But history shows the effects should be limited, according to Commonwealth CIO Brad McMillan. Headwind Going Forward This data is not presented to say that today's attack won't bring real effects and hardship. Oil prices are up to levels not seen since 2014, which was the last time Russia invaded Ukraine. Higher oil and energy prices will hurt economic growth and drive inflation around the world and especially in Europe, as well as here in the U.S. This environment will be a headwind going forward. Economic Momentum To consider additional context, during the recent waves of Covid-19, the U.S. economy demonstrated substantial momentum. Looking ahead, this momentum should be enough to move us through the current headwind until the markets normalize once more. In the case of the energy markets, we are already seeing U.S. production increase, which should help bring prices back down—as has happened before. Will we see effects from the headwind caused by the Ukraine invasion? Very likely. Will they derail the economy? Not likely at all. Historically, the U.S. has survived and even thrived during wars, continuing to grow despite the challenges and problems. That is what will happen in the aftermath of today's attack by Russia. Despite the very real concerns and risks the Ukraine invasion has created and the current market turbulence, we should look to what history tells us. Past conflicts have not derailed either the economy or the markets over time—and this one will not either. Consider Your Comfort Level So, should we do anything with our portfolios? Personally, I am not taking action. I am comfortable with the risks I am taking, and I believe that my portfolio will be fine in the longer term. I will not be making any changes—except perhaps to start looking for some stock bargains. If I were worried, though, I would take time to consider whether my portfolio allocations were at a comfortable risk level for me. If they were not, I would talk to my advisor about how to better align my portfolio's risks with my comfort level. Ultimately, although the current events have unique elements, they are really more of what we have seen in the past. Events like today's invasion do come along regularly. Part of successful investing—sometimes the most difficult part—is not overreacting. Remain calm and carry on.

JPMorgan Wealth Management

Stay invested: Timing the market is difficult, and selling during times of stress can have dramatic consequences for long-term returns. Over the past 20 years, seven of the best days happened within just about two weeks of the 10 worst days (according to Factset data). Moreover, this is why we diversify portfolios and continue to hold allocations like core fixed income. By helping investors avoid the full brunt of market downturns, diversification has historically helped a portfolio's value recover sooner and smooths out the ride along the way. Revisit your current exposure: Over the last several months, we've advocated for incremental steps to de-risk around the maturing economic cycle. A focus on quality and balance across sectors is key, and we have grown more constructive on defensive areas of the market. Investing today isn't easy, and active management and thoughtful investment structuring is essential. Monetize volatility: Markets are likely in for a bumpy path until clarity around the current situation evolves. We can employ a number of strategies that can take advantage of these swings, as well as add protection. Further, we can structure exposure to underlying assets that may be beneficiaries of the ongoing tensions. It is important to remember that the economy is broadly still in a state of strength—household balance sheets are healthy and corporate profits are robust. Over time, politics, economics, and markets are likely to find a new equilibrium. For instance, energy markets may find calm as Russian exports are diverted to other importers and other producers step-up (such as from Iran, as suggested by current headlines), allowing central banks to refocus on fundamentals. Whatever the path may be, we expect the world to eventually heal from the damage—but there may be pain felt along the way.

LPL Financial

Here we list 11 things you need to know. • While the market reaction is likely to be more acute than the response to Russia's illegal annexation of Crimea in 2014, the attack on American interests is less direct than Iraq's invasion of Kuwait in 1990. • Speaking of 2014, stocks and bonds in the U.S. both took that event in stride, while European stocks were considerably weaker for several weeks. Interestingly, crude oil spiked initially, then quickly sold off. • Broader questions of the long-term impact on U.S. and European diplomatic and geopolitical goals, as well as the conflict's impact on U.S. national interests, are significant but not in themselves market moving. • Stock market drawdowns from geopolitical shocks average about 5% with recovery taking under two months, but larger conflicts in sensitive regions can be deeper and last longer. • We do expect further market volatility as the situation unfolds and elevated uncertainty may persist for several weeks, but if the conflict is contained, we do not expect long-lasting contagion to broader markets. • As shown in the LPL Chart of the Day, if the economy avoids a recession after (or during) a major geopolitical event, stocks usually do just fine. "We looked at 37 major historical or geopolitical events since World War II and found that if there is no recession then stocks gain nearly 11% a year later," explained Ryan Detrick. "The flipside is if there is a recession, stocks are down more than to 11% a year later. Given we simply don't see a recession on the horizon due to a strong consumer and corporate earnings backdrop, this recent weakness could be an opportunity for investors." • Upward pressure on commodity prices, already impacted by COVID-19-related supply chain disruptions, may see a more sustained impact as economic sanctions play out and will probably be the main source of risk for possible broader economic repercussions. • European equities have done well relative to U.S. counterparts so far this year as U.S. megacaps have stumbled, but the relative performance may stall as the crisis plays out. • There may be some market opportunities for very active traders during the crisis, but for most investors we believe understanding the typical market response to geopolitical risks and focusing on where we're likely to be at the end of the year rather than at the end of next week or month is likely the best response. • Building on the note above, past market corrections of 10-15% have been followed by rather strong future performance. • From a purely technical perspective, we continue to see near-term opportunities in commodity-exposed equities.

Raymond James

In a January research piece, we highlighted that the market was already vulnerable due to the Fed's likely lift-off of a tightening cycle. In the article, we illustrate how the development of other negative headlines influences the degree of weakness inflicted on the already suspect market. For example, the build-up of troops at the Ukraine border was already one of the "other negative headlines"- the invasion moves it up the scale in importance (negative). Declines due to geopolitical conflict are more often a good buying opportunity: Stocks will remain under pressure as long as the conflict drags on. Equities tend to overshoot (up and down) during the most uncertain times. The uncertainties regarding this event are numerous. Given the negative impact higher energy prices will have on the global economy, the response of Western leaders with sanctions is one uncertainty. Any adjustment in output from OPEC to counter the increase in energy prices and actions from central bankers will be significant for financial markets. How far Russia pushes and how long the conflict lasts are other unknowns. Finally, the debate and commentary regarding what Europe will look like politically on the other side only add to the uncertainty. Given the degree of uncertainty, stocks are likely to overshoot the downside in the coming days, weeks, or months. When equities overshoot the downside, positive gain ensues on the other side. Historically, geopolitical conflicts produce good buying opportunities. Although the current period is different from others in history, past geopolitical conflicts are helpful to review to understand how this may play out. For example, in 1990, the invasion of Kuwait by Iraq and the ensuing Gulf War contributed (a recession occurred as well) to a 20% equity market decline over 3-months. Stocks recovered to a new price high in just 4-months. In 1962, a near Russia/US nuclear conflict during the Cuban Missile Crisis led to a 22% decline for stocks in just 3-months. However, over the following 12-months, stocks rallied to a new all-time high. Although the current situation is troubling, it is far less disturbing than these two examples. Inflation, Economic Growth, and Central Banks' response remain the key market influences over the next 12-months: Outside of the near-term, shock-factor implications on the equity market, the most significant risk from the current situation is the upside pressure it will add to already elevated inflation. As a reminder, stocks typically trade at lower valuations in periods of sustained high inflation. As of now, investors anticipate the current period of high inflation to moderate with the 10-year inflation expectation of 2.60% below the 5-year expectation of 3.26% and well below the most recent Core CPI reading of 6%. Although 10-year inflation expectations are not troubling, the rapid rise in the 5-year (it was ~2.7% in late December) is note-worthy over the near term for equity investors. As long as it trends higher, stocks are likely to struggle as valuation adjusts. The second risk is the global economic impact. Military conflict dents confidence and thus has a negative feedback loop on the economy. In the EU, the economic impact will be more dramatic and raise the likelihood of a recession. The threat is much less for the US and other parts of the world. However, higher energy prices, economic weakness with trading partners, and lower confidence will lower GDP growth. Despite potential slower growth, the risk of recession remains low. The US economy was estimated to grow above the long-term trend of 2% before the conflict. The combination of higher inflation and slower growth puts the central bankers in a difficult position. Therefore, the risk of policy error will increase in the eyes of investors. Valuation may come under pressure in such an environment as investors compensate for uncertainty. Fortunately, valuation has already declined over the past year. The priceearnings ratio of 20x is down from a peak of 28x and is now back to the 5-year average of 20.9x. Despite the decline, if inflation expectations, as measured by the break-evens, continue higher, we see additional pressure on the multiple. Equities were already deeply oversold before the latest escalation. Despite the apparent headwinds, we believe equities will register gains over the next 12-months. The already decline of 14% discounts much of the uncertainty. Energy is a component of inflation, but other factors, including the supply chain and labor, have room to improve. Before the conflict, our base case had inflation moderating over the next twelve months as labor market participation improves and the supply-chain backup improves. Our base case remains for moderating inflation ahead. When combining this with the belief that the US economy is not at risk of slipping into contraction, higher equity prices over the next 12-months are likely. Furthermore, stocks screen favorably versus bonds with a current excess return of 3% (utilizing the S&P 500 earnings yield of 4.9% vs. the 10-year treasury yield of 1.9%). Since 1962, an earnings yield in the 2.5-3% range coincided with an 8.3% compounded annual return on average over the following 3-years. Technically, the upside momentum created as the market glided higher in 2021 is broken, for now. Combining the loss of technical momentum with the obvious uncertainties, we believe equities will struggle to develop sustainable upside momentum anytime soon. For now, we are using somewhere in the 4000-4100 area as a potential technical downside. If inflation proves more problematic and economic conditions become challenging, the market's downside will increase. Risk vs. reward compelling: At the low end of the above range, the market would trade at ~19x trailing earnings or 9% below the 5-year average. Consider our scenario outlined above regarding the economy, earnings growth, and moderating inflation comes to fruition. In that case, we envision the S&P 500 in a range between the old high of 4800 to a level near 5000. Regardless of the ultimate downside, the risk-reward is compelling from the current quote of 4150 (-14% from highs).

UBS Global Wealth Management

What should investors do? Heightened volatility on the escalation of the conflict shows markets had not fully priced in the likelihood of deeper conflict. We expect continued volatility in the near term as leaders calibrate and announce their response to this escalation... [E]nergy prices could head higher, and oil-reliant economies could see economic activity take a hit in non-energy sectors. While it is impossible to judge the precise magnitude of geopolitical effects on markets, such events have generally not prevented equities from moving higher over a medium-term horizon, and drawdowns driven by geopolitical stress events are typically short-lived for well-diversified portfolios. Historically, the greatest risk for investors from geopolitical crises has come from overreacting and under-diversifying. We think it is important for investors to maintain a calm stance and keep a broad perspective, and to build a portfolio robust enough to navigate the Ukraine crisis and rising US interest rates. We see five key action points that can keep portfolios on track amid the uncertainty: Keep a diversified portfolio. By diversifying across regions, sectors, and asset classes, investors can reduce their exposure to idiosyncratic risks related to the crisis in Ukraine, or to other emergent political risks around the world. The combined revenue exposure of the S&P 500 to Russia and Ukraine, for example, is only about 1%. Diversification offers intrinsic bear market protection; in bear markets since 1945, the S&P 500 fell an average 34.5% and spent 39 months (about three-and-a-half years) "underwater," while a 60/40 portfolio lost an average of 20% and registered a fresh record high, on average, within 30 months (about two-and-a-half years). Use commodities as a geopolitical hedge. Russia accounts for around 40% of the European Union's gas imports and 30% of its oil imports, and is the world's largest wheat supplier. Ukraine is a material exporter of corn, wheat, and oilseeds. Amid the risk of supply disruptions, we think broad commodities can be an effective geopolitical hedge for portfolios, as well as offering an attractive source of returns in an environment of accelerating growth, persistent inflation, and higher rates. We think a protracted escalation could push gold prices above USD 2,000/oz. Position for US dollar strength. The US dollar is a "safe-haven" currency that tends to rally during periods of heightened geopolitical uncertainty or "risk-off" sentiment in financial markets. In addition, we think that market expectations of six or seven US interest rate hikes are likely to support the US dollar in the months ahead. As such, we see the US dollar as an attractive tactical currency position at present. Buy the winners from global growth. Against a backdrop of heightened concerns about Ukraine, inflation, and interest rates, it is important to remember that global economic growth remains above trend and COVID-19-related restrictions are being lifted. We think this should continue to favor value and cyclical sectors and markets, including energy, financials, and the Eurozone. It is worth noting that, despite their proximity to the crisis in Ukraine, the continued outperformance of Eurozone equities compared to US equities over the past month shows that the forces of economic recovery remain powerful and are potentially still a more important driver of global markets than events in Eastern Europe. Build up some defense. With uncertainty set to remain elevated, investors looking to reduce volatility in portfolios can consider balancing some of their cyclical exposures with defensive sectors and strategies. Global healthcare is still our preferred defensive sector, and we also see dividend strategies, dynamic allocation strategies, and the use of structured solutions as potentially attractive means of improving the risk-return profiles of overall portfolios.

Wells Fargo

Our conviction is that any Russian invasion should favor U.S. equities and a broad-based commodity exposure. To be specific, we reiterate our preference for equities and commodities over fixed income, for U.S over international markets, and for a balance between quality and cyclical sectors. ... Potential economic and investment implications There is little direct trade between Russia and the world outside of Europe, so both the sanctions on Russia and damage to sentiment likely will fall squarely on the European economies. Russian sanctions are likely to reduce Russian commodity exports (especially energy) into Europe, while any fighting weighs on European household and business sentiment. Weak confidence and reduced gas supplies should reduce European economic growth in 2022. The potential fallout for European economic growth depends on how long hostilities may last. Russia's 2014 annexation of Crimea was relatively short and had only a temporary negative impact on the European economy and equity markets. Any Russian invasion of wider Ukraine could prove to be a long struggle, especially to pacify the Ukrainian population. By contrast, the inflation impact likely would spill over into the global economy. Reduced Russian gas flows already are forcing European factories and utilities to substitute petroleum, boosting oil demand, even as reduced Russian oil supply further tightens global oil inventories. In turn, higher energy prices should stoke inflation, more so in Europe, and somewhat less in the U.S. and Asia, which tap more diversified energy sources. Also, Russia is the world's largest exporter of fertilizer, and restricting this supply may push up wholesale food prices. Supply-chain disruptions could extend inflation pressure via the auto sector, as manufacturers struggle to replace Russian supplies of platinum and palladium in catalytic converters. Nevertheless, we expect 2022 domestic consumption in the U.S. and parts of emerging Asia to produce above-average economic growth. Any incursion in Ukraine may add inflation pressure and pressure long-term rates higher. However, if European conflict extends and U.S. fixed income becomes a perceived risk haven for European investors, then, on balance, U.S. long-term rates may steady and limit the room that the Federal Reserve has to raise short-term interest rates. It is important to note that any invasion would be a blow to market sentiment worldwide, not only in Europe. If an invasion occurs, investors hardly could ignore what might be the largest military operation in Europe since the 1940s. Even though the direct impacts would fall largely on Europe, U.S. markets could overshoot to the downside. Yet, we do not believe that even an invasion of Ukraine would generate a new U.S. economic recession. Thus, our conviction is that any Russian invasion should favor U.S. equities and a broad-based commodity exposure, and these favorites are already the foundation of our current tactical preferences. To be specific, we reiterate our preference for equities and commodities over fixed income, for U.S. over international markets (particularly over developed markets in Europe and Asia), and for a balance between quality and cyclical sectors.