Financial Markets

Mounting evidence that the labor market is on its way to cracking checked two more boxes on our checklist, driving us to tactically downgrade equities to underweight while upgrading fixed income to overweight. Our tactical and cyclical (6-12 months) views are now aligned as our conviction that a recession will begin before year-end has increased.

Republicans are favored but the election is still competitive. Equities, corporate credit, and cyclical sectors will fall until policy uncertainty is reduced.

We are growing positive on Growth assets with recession expectations increasing our optimism on entry points. Equities are led by APAC Private Equity, North America Venture Capital, and Europe Buyouts. Our outlook continues to improve on CRE within the Inflation & Diversification bucket while we are underweight Multi-Strategy amongst Hedge Funds. We maintain an overweight to Senior Direct Lending for Income with a preference for North America.

It’s status quo for the SIFI banks, as they don’t see consumer credit performance materially worsening from now-normalized levels and they are not meaningfully exposed to commercial real estate losses.

As Trump’s victory odds rise, the underperformance of European equities deepens. How negative would a global trade war be for European assets?