Recession-Hard/Soft Landing
Financial markets were taken on a wild ride between Wednesday and Friday of this week, with hugely important monetary policy meetings in the US, euro area and UK along with a rash of economic data. Despite all the news, noise and market volatility, the underlying message for monetary policy and bond yields in the US, euro area and UK is unchanged.
The US economy will experience a period of benign disinflation over the next few quarters. Beyond this goldilocks period, either the economy will slip into a mild recession in 2024, or more ominously, a second wave of inflation will prompt the Fed to slam on the brakes, leading to a deep recession.
This US Bond Strategy Insight discusses what we learned from yesterday’s FOMC meeting and press conference, and discusses the implications of the market’s reaction.
President Biden’s political capital has fallen as he enters a challenging year that will include a domestic faceoff with the House Republicans and foreign crises stemming from China, Russia, and Iran. Stay defensive and prefer bonds over equities.
The Web 2.0 bubble is bursting, with far-reaching consequences for US stock market behaviour, sector allocation, and global asset allocation.
The most important question investors need to answer is whether this is the right time to shift the portfolio to a more aggressive and cyclical stance now that the end of the hiking cycle is in sight. To answer this question, we review the most recent macroeconomic, geopolitical, and equity market developments, and do our best to separate facts and data from sentiment and conjecture. We conclude that there are many challenges ahead and equities are not in a clear yet. We recommend investors add small positions in areas of the market that benefit from rate stabilization while maintaining an overall defensive stance.
This week’s Special Report goes over the structural problems facing the UK economy and our outlook for UK gilts and the sterling following turbulent moves in 2022.
This week’s Special Report uses our Golden Rule of Bond Investing to forecast US Treasury returns for 2023 under different economic scenarios.
Heading into a black hole, you pass a point of no return known as the ‘event horizon’ after which your impending oblivion is sealed. US recessions also have an event horizon, which we are fast approaching. We reveal a leading indicator of this event horizon, and what it means for investment strategy.