Quarterly Commentaries

Slow-to-moderate growth seems likely in the U.S. through 2024, but late-cycle risks persist and international conditions remain tenuous.  We see numerous return and risk management opportunities in this backdrop.

Late-cycle conditions persist, and we see paths for either slowing growth or a “soft landing” in 2024. We expect sectors with stable earnings growth to drive positive-but-volatile equity markets, while the interest rate backdrop should benefit fixed income.

Risks abounded in 2023, yet some areas of the U.S. and global economy showed significant resilience.  As a much-predicted recession failed to appear, inflation cooled, and the Fed eventually paused, U.S. equities posted a strong-but-narrowly-led rally, while elevated yields provided positive returns for fixed income year-to-date, despite interest rate volatility.

A mix of resilience in some economic measures and deterioration in others is typical in the later stages of a cycle. As ongoing slow growth faces headwinds, we believe balancing defensive exposures and moderate economic sensitivity is warranted.

Late-cycle conditions continue with the economy facing lagged impacts of Fed tightening, tougher lending standards, and declining profits. We continue to avoid or underweight the most economically cyclical parts of the markets.

The Fed continues to tighten, even as bank turmoil highlights the economic stresses of elevated interest rates.  We still see risks in economically sensitive areas of the market as the impacts of aggressive monetary policy work through the broader economy.

With a weakening economic backdrop, we see opportunity in less economically sensitive areas of the market and fixed income. We also stand ready to adjust our outlook and positioning when markets begin to look past the downturn.

The economic cycle has continued to progress rapidly in 2022, as various interconnected factors including persistent inflation, rising interest rates, aggressive Fed monetary policy, and increased recession risk have driven challenging markets with unusual correlations, particularly in the U.S.

While some economic data remains sound, deterioration in other data suggests a maturing economic cycle. We believe the Fed’s monetary stance has increased the risk of recession, and we see potential for disappointing earnings, particularly for more economically sensitive parts of the market.

We see rapid progression of the global economic cycle, with certain fundamental areas of strength but also rising risks. As our outlook evolves, we continue to position portfolios to balance risks and opportunities in a mid- to late-phase economic backdrop.