By Dominic Ceci | Johnson Financial Group • August 15, 2024
2 minute read time
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Economy
The probability of recession was high a year ago as Leading Economic Indicators (LEI’s) pointed to recession. LEI’s remain negative, but it seems government spending was able to offset the impact of higher interest rates an inflation.
While economic growth remains resilient overall and the probability of recession has declined, bifurcations exist with some segments of the economy struggling.
Strong economic growth has allowed the Fed to focus on inflation, which remains sticky near 3%.
Markets
Lower interest rate volatility combined with reduced recession risk has supported global stock markets with double-digit gains in 2023 and mid-single digit gains YTD.
Bonds on the other hand are flat on the year with higher interest rates offsetting interest income.
Positioning
Our outlook is balanced with either a shallow recession or soft landing as the most probable scenarios in our view.
Markets appear increasingly priced for a soft landing and not recession demonstrated by above average equity valuations and tight credit spreads. Therefore, portfolios are positioned with a more conservative, less economically sensitive stance.
Given this outlook, we recommend rebalancing portfolios as appropriate as part of a disciplined investment management process.
U.S. Election
Markets typically experience more volatility as uncertainty increases ahead of an election. However, over the long term any impact is hard to measure.
Things that may influence markets include: health/ability of candidates to serve, tax policy, approach to regulations, tariffs and deficits
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