“However, much of this was driven by earnings-per-share (EPS) multiple expansion and improving sentiment after the US Federal Reserve put rates on hold, rather than by a broad upturn in the earnings outlook for the next 12 months,” said Mr Mallik.

“Therefore, investors need to be cautious, especially as volatility was unexpectedly low until late 2018 and could easily spike, given the significant geopolitical and growth risks facing the global economy.”

Given where the market cycle is now, which is now the longest cycle on record, and the increasing likelihood of volatility, Mr Mallik said it is questionable whether such a strong rally is sustainable over the remainder of the year without a significant improvement in earnings outlook.

“An expansion in earnings yield driven by higher earnings or lower share prices is consistent with a dovish outlook on bond yields, and the current level of the yield gap between equities and bonds globally is slightly lower than its 10-year average,” he said.

A significant gap has also emerged between prices and fundamentals, he explained.

“Much depends on how earnings develop over the next six months and whether the Fed, having switched gears abruptly at the end of 2018, maintains a dovish stance,” he said.

“Earnings revisions and expectations globally were mostly negative at the start of 2019, but seem to have stabilized in the second quarter. Overall, consensus expectations are for higher earnings from the eurozone and emerging markets (EMs) relative to the US.”

Mr Mallik said with volatility flirting with 2018 lows in the face of very real geopolitical risks, he is cautious on equities overall and are focused on building positions in markets that may offer value.

“In our view, although emerging markets are more exposed to risk-off sentiment and a stronger US dollar as the trade dispute escalates, we continue to see better value there in aggregate than in Europe or the US, given how far US markets have come and the fact that Europe continues to disappoint,” he said.

“We will seek to take advantage of any increases in short-term volatility around the trade conflict to find attractive entry points into EMs.”