Key Insights

Global economic growth has surprised to the upside, but U.S. recession risk is rising.
Although U.S. growth has remained strong, even accelerating in early 1Q, leading indicators continue to signal recession. Tighter lending standards, as a result of the recent banking crisis, only increase the risk of a hard landing.
Price pressures remain too elevated; in most economies, inflation will end the year above target.
Part of the inflation basket will soften rapidly in response to normalizing supply chains and energy prices, but other key segments still require considerable weakening in labor markets if there is any hope of approaching target.
Central banks are nearing the end of their tightening cycles as financial stability risks increase.
Each additional interest rate hike increases the risk of further market turmoil. Central bank policy rates will likely peak soon, but rate cuts are unlikely unless there is a severe and dangerous spike in financial system stress.
Although equities have been resilient, earnings weakness will threaten further drawdown.
While 2022 dynamics were driven by inflation and rates scares, 2023 is likely to be dominated by earnings and economic growth scares. Margin pressures will weigh on company profitability, leading equities lower.
High-quality fixed income offers stability and income in this challenging economic backdrop.
Central banks are likely nearing the completion of their tightening cycle, implying that bonds will be able to support portfolios both as recession approaches and during forthcoming periods of volatility and risk.
Alternatives provide important diversification against traditional equities and fixed income.
While inflation is decelerating, it remains uncomfortably high, so portfolios still require allocation to real assets to mitigate inflation risks. Assets that perform well in elevated volatility environments should also be prized.
Macro views
Asset allocation
Equities
Fixed income
Listed Infrastructure
Real estate