Markets Reward Mettle

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

What we’ve done

We closed positions in Indonesia and Mexico, on rising global recession risks. The liquidity from this move is sitting in cash for now.

What we’re watching

We’re watching very closely for upward momentum to take hold in ways that signal it can be sustained in US biotechnology, US preferred securities, Nasdaq-listed companies with large exposures to China and, in liquid alts, energy Master Limited Partnerships.

What we’re telling clients

My market outlook for 18 months from now is tinted a gorgeous tone of rose. Central bank tightening is brutal to live through. I know—I’m living through it too. Valuations for stocks and bonds fall simultaneously. But recall that we have two global macro scenarios for 2023: a soft landing in the United States, or a recession in the United States. (In both scenarios the euro area and Mexico go into recession.)

Let’s look at each of these and think through its meaning for markets. In case of a soft landing, on the economy’s way down, the Fed will eventually pause or perhaps even loosen, causing long-term Treasury securities to revalue. On its way up, equity valuations will rebound. In case of a recession … ditto!

You’re being tested. Maintain discipline, hold steadfast for your long-term vision, and you’ll prove your mettle.

Markets do reward mettle.