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CIO Viewpoint audiocast

Digging In: A Rise in Uncertainty Prompts Lower Non-U.S. Allocation

Given the momentum that has gathered recently regarding global trade uncertainty coupled with our view that the U.S. is further breaking away from the rest of world in terms of growth levels, monetary policy flexibility and potential future economic catalysts, the Investment Strategy Committee has downgraded our positioning in non-U.S. developed market equity and emerging market (EM) equity.  

We have lowered each exposure by around 2%, which further underweights non-U.S. developed markets and moves EMs to a slight underweight from a slight overweight across our CIO strategies. We believe, however, that EMs have solid long-term growth prospects driven by their consumers. 

We also believe that the Federal Reserve has more policy flexibility relative to non-U.S. central banks which would likely reverse some of the recent risk-off pull-back in U.S. equities. We are, therefore, allocating half the downward adjustment (2% of the 4%) to U.S. large capitalization equities and the remainder moves to cash.

Overall, we remain favorable on equities but would be patient in the coming weeks and let the market settle down before considering additions to your overall exposure.

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Investing involves risk, including the possible loss of principal.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Past performance is no guarantee of future results.

The views expressed are th­ose of the Chief Investment Office (CIO) only and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer by any Merrill Lynch or U.S. Trust entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

Global Wealth & Investment Management (GWIM) is a division of Bank of America Corporation. Merrill Lynch Wealth Management, Merrill Edge®, U.S. Trust, and Bank of America Merrill Lynch are affiliated sub-divisions within GWIM. The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.

The GWIM Investment Strategy Committee (GWIM ISC) is responsible for developing and coordinating recommendations for short-term and long-term investment strategy and market views encompassing markets, economic indicators, asset classes and other market-related projections affecting GWIM.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. All sector and asset allocation recommendations must be considered by each individual investor to determine if the sector is suitable for their own portfolio based upon their own goals, time horizon, and risk tolerances.

The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high‐yield bonds may be subject to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. 

Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.


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