- US real GDP growth: +1% in 2023, +1.4% in 2024
- Rolling recessions across US sectors, below trend global GDP growth of +2.5% and 2.4% in 2023 and 2024
- US CPI inflation to decline to 3.5% by end-2023, 2.5% by end 2024
- Fed to start cutting interest rates in 4Q 2024
- The US dollar has peaked, weaker USD over the next few years
Putting Cash to Work in a Slowing Economy
We are not yet at the end of the bear market, but significant valuation improvements point to higher long-term returns. Investors may benefit from immediate income-generating assets while investing in long-term growth opportunities.
- Equity market sentiment remains bearish, but there is a significant amount of cash waiting to “buy the dip”
- Divergent equity markets, with very narrow breadth, are creating strong valuation opportunities in certain categories of US and non-US markets for the future
- Our expectation is for policy interest rates to decline by year end
- We favor various investment-grade corporate bonds
- We like dividend grower equities in resilient industries
- Qualified investors may consider private credit opportunities
Unstoppable Trends are Changing the World
Unstoppable trends are long-term forces transforming how we live and do business. We seek portfolio exposure to these powerful trends.
- Digitization: Generative AI is the beginning of (another) technological revolution
- The rapid adoption of AI opens the door to significant investment opportunities in the ecosystem that supports AI
- Energy Security: Unusual opportunities in an atypical energy cycle
- World events and the rise of renewable energy are reshaping the energy landscape
- G2: Putting national security interests ahead of economic cooperation
- Intensifying US-China tension creates challenges and opportunities for investors as reshoring and nearing become more common
- Invest in Longevity
- Healthcare demand continues to grow faster than the world economy providing non-cyclical growth for portfolios
Building Dynamic Portfolios
While our asset allocation strategy remains defensive, investors should consider staying invested and modify portfolios over time.
- The bear market is not yet over. It’s too soon to price in a recovery
- Today we favor quality, such as longer-duration bonds and investment-grade corporate or municipal bonds that could offset potential credit spread widening
- Likewise, we also favor defensive equities, with an emphasis on dividend growers and companies with strong balance sheets
- Some small- and mid-sized firms in the US and some emerging markets are becoming undervalued
- We’re overweight US government issues and investment-grade corporate bonds
- While there will be periodic rallies, we see a weaker US dollar ahead, making currency diversification more important
- A weaker USD creates value potential in non-USD investments, including non-US equities and unhedged bonds
All forecasts are expressions of opinion, are subject to change without notice and are not intended to be a guarantee of future events.