Assets classes for every environment
The below, from a Bloomberg strategist, is, we think, a reasonable first approximation for what should work depending on which environment you wind up in.
We have a largely similar frame, geared around what soft landings look like (inflation returning to trend, unemployment remaining at or near 4%) vs what hard landings look like (inflation > 4%, unemployment heading towards 5%).
The odds of a soft landing have decreased fractionally, in our view, with the stronger NFP data (non farm payrolls) and the persistence of wages (annualised average hourly earnings) and we are closer to 55-60%, rather than 60-65%.
The edge here is very, very small. We are truly in uncharted territory. Firstly, central banks globally haven’t had this particular problem in 40 years, secondly Europe hasn’t had a war of the magnitude in a very long time, and the Fed has never been able to get the unemployment rate up by more than 1% without it going up by 3%.
It isn’t really “fine-tuneable”.
So, good reasons to be bullish (valuations, pockets of macro data) good reasons to be bearish (policy, data “too strong” risking the overshoot) and we are reflecting this by staying pretty close to our SAA weights, without major tilts on to any one thing, area, geography, asset class, theme.
The possible exception here is to Growth stocks, which still trade at too-large a premium to value stocks, which we reflect with select managers (e.g. Allan Gray, IML etc).
Strong opinions, weakly held, all the way down, here.
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