In June’s Capital Perspectives, “Battle of the Bulls vs. the Bears,” we spotlight the question with which investors are now grappling: Can the economy withstand the twin burdens of high inflation and tightening monetary policy to avoid a recession within the next 12–18 months? The answer is not so simple.
We share our views on the likelihood of an economic soft landing, which depends on understanding whether inflation has peaked and how quickly it will decelerate. On the first point, we have increased confidence that inflation is in the process of peaking and will drop throughout the rest of the year. It is the second point, namely how fast it will come back to Earth, that is much more difficult to ascertain at this time.
The punchline for portfolio positioning is that we remain fully invested in equities, underweight to bonds, and with a slightly elevated cash position that we are exercising patience in deploying.
Please see important disclosures at the end of the article.