Fed’s belt tightening starting to be felt

From Citywire


It’s outlook season for asset managers. Ten years of the bull market in the US means it’s broadly accepted we are nearing the end of the economic cycle, which could trigger a recession.

Predicting a recession – defined as a fall in GDP in two successive quarters – is the golden ticket, and, as the yield curve flattens, stock-pickers are placing their bets on when the market will slump.

French fund house Natixis is relatively bearish and puts the chances of a US or global recession in 2018 at 30%.

Consumption is supported by strong employment trends in many countries, but the possibility of a recession cannot be ruled out, said David Lafferty, chief market strategist.

On the other hand, Fidelity is more positive, with Jeremy Podger, who runs the Fidelity Global Special Situations fund, saying 2019 has the potential to be a good year for equities.

This is supported by decent earnings growth and relatively attractive valuations, but much depends on the actions of policymakers around the world.

Union Investment joins Fidelity in kicking the can down the road. It is not anticipating a recession, but there is a rockier road ahead for stocks, said Jens Wilhelm, head of portfolio management. He recommends that investors tailor their strategies accordingly.

Both global growth and corporate earnings may have peaked but there’s no sign of an impending economic downturn, according to Pictet’s chief strategist Luca Paolini. ‘Yes, the global yield curve has inverted this year, but historically recession has only followed a year or two after that occurs,’ he said.

NNIP declined to commit to a specific date as to when a recession might come, but CIO Valentijn van Nieuwenhuijzen sees the US facing a moderate growth slowdown in 2019 as the effect of fiscal stimulus wanes and recent tightening by the Federal Reserve is starting to be felt.

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