Growth deceleration in the U.S. is still on the cards given the uncertainties from tariff policies, and for borrowing costs to remain high. It is uncertain whether fiscal or monetary policy can be eased in time. Meanwhile, other central banks and governments in the world do have some flexibility to be more supportive of their economies to cushion the impact from weaker U.S. economic growth.

For equities, softer growth and tariffs could lead to margin compression and lower earnings growth. The U.S. may arguably be more vulnerable given this backdrop due to its valuations. European and Asian markets could potentially see government supported sectors, such as defense in Europe and technology in Asia, receiving better support from investors.

For fixed income, rising government debt in the U.S. could offset the downward pressure on yields from weaker growth. Hence, short to neutral duration could strike a better balance between hedging against recession risk and fiscal concerns. We see corporate credits benefitting from healthier company balance sheets. A weaker USD can also drive more capital flows into emerging markets and Asia, both in fixed income and equities.

Beyond fixed income, alternative assets such as real estate, infrastructure and transportation can also help investors to generate income opportunities, especially if access to liquidity is less of a consideration. Option embedded equity strategies can also help investors to manage periods of high market volatility.

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