A recession is coming. A recession is coming. This has been a drumbeat from the professional economists, (who are often wrong), yet it clouds the actions of investors who have added to fixed income based on inflation falling, the Fed rate increases peaking, and a slowdown as an economic backdrop.
Geopolitical risks and volatility are still significant issue and surveys suggest that views for the global economy have not changed much over the last six months. The macro view is more downbeat than a year ago but have come off the lows during the period when the Fed was raising rates at 75 bps per meeting.
Nevertheless, we are looking at the macro data closely for signs that any investor optimism is misplaced. We are concerned that while the Fed may be peaking with their rate increases, the cumulative effects of higher rates have not been fully embedded in the real economy. Central banks tend to overshoot with policy and 2023 may not be the exception. An overshoot will have a big impact on returns especially during the summer when the markets turn on as switch in the real economy.
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