Fading macroeconomic tailwinds
Macroeconomic update for October 2023
The lively debate around whether the US will face a recession is seemingly never-ending. We have previously zoomed in on the strong consumer and resilient job markets that have propped up the US economy.
A closer look at key economic indicators shows a stark contrast between leading ones (predicting future changes in the economy) and coincident ones (reflecting the current state of the economy). While the Leading Economic Index fell for the 17th consecutive month in August, indicating a challenging growth period and a possible recession ahead, the Coincident Economic Index climbed. We reiterate our view that the macroeconomic headwinds are not just already in place but will increase.
Another lingering question among investors is when the US Federal Reserve will end the most aggressive interest-rate hikes in four decades. We believe it’s nearing the finish line and that US interest rates are now sufficiently restrictive to bring inflation back down to the 2 percent target.
We feel comfortable with our asset allocation and refrained from making any changes for now.
The monthly CIO update analyzes the current market environment and delves into the economic backdrop. Michaela Huber, Cross Asset Strategist at Vontobel Multi Asset, and Christopher Koslowski, Senior Fixed Income & FX Strategist at Vontobel Multi Asset, discuss the trends.
Key Takeaways
- US Recession is coming
We believe the headwinds are already in place from a macroeconomic perspective will increase while the tailwinds are set to fade. - Fed approaching the finish line
The US Federal Reserve is likely close to concluding its most aggressive monetary policy tightening effort in 40 years. We believe US interest rates are now sufficiently restrictive to bring inflation back down to the Fed’s 2 percent target. - Keeping a steady hand
After reviewing the current risks and opportunities, we consider our portfolios well-positioned and refrained from making any changes to our asset allocation.
