Macroeconomic update for July 2023

We have previously pointed to the remarkable resilience of the US labor market and the strong consumer as having provided the economy with a boost. That support means the long-awaited recession has been delayed — but not averted. Various leading indicators, such as the inverted yield curve, strict lending standards and the lack of economic support from Europe or China leads us to expect the recession towards year-end. Inflation is set to continue its downward trend, while the US Federal Reserve — given the current absence of a recession — is likely to focus on its inflation battle before pivoting to rate cuts in the first quarter of 2024.

Given this environment, we feel confident with our current portfolio positioning, meaning we refrained from making any changes. We went overweight on equities at the end of September and believe this is still warranted, especially considering our nine-month horizon and the prospect of a Fed pivot.