Fidelity's Asset Allocation Research Team (AART) examines major themes in global financial markets and presents its investment outlook in this quarterly market update.

In the same frame as the equity market charting new highs, one has to marvel at the US business cycle moving through its record-long tenth year of expansion. So, what is gnawing at investors?

The U.S. is now in its longest economic expansion on record, but many investors are wondering what it means for markets in the months ahead.

Global growth continues to slow, but is still positive. Current macro fundamentals are sufficient and suggest a rate cut would be delayed. However, survey data and market messaging signal that rate cuts are more likely and sooner than hard economic data would indicate.

Uncertainty & demographics put a premium on cash flow.

The great American writer and humorist Mark Twain was author of many famous sayings, most notably “Reports of my death have been greatly exaggerated.” We think that most famous of Mark Twain sayings applies nicely to our ongoing – and now record – US economic expansion.

Central banks are shifting toward monetary easing, as they aim to cushion a global slowdown sparked by trade tensions. This policy pivot should help stretch the cycle and has depressed long-term yields, creating a supportive backdrop for income-generating assets. One such asset we favor: local-currency EM debt.

The U.S. Treasury yield curve steepened last week. Federal Reserve (Fed) Chairman Powell all but ensured a rate cut in July, and markets reacted strongly to a higher-than-expected inflation reading for June. As a result, yields for maturities of two years and shorter declined while all others rose.