Beyond the pause: What happens after peak rates?
A likely pause in the US hiking cycle is now approaching. See how the peak in rates has impacted equity and bond markets in the past.
The economy faces slightly subtrend growth, with risks in both directions. We maintain a duration overweight, upgrade equity to neutral, remain neutral on credit and keep a slight overweight to cash. As stock-bond correlations follow inflation lower we favor selectively adding more risk-on positions.
Recession is still our base case scenario, but we’ve lowered it to 55% while raising the likelihood of Sub Trend Growth to 40%. Our Crisis (5%) and Above Trend Growth (0%) scenarios are unchanged. Our top pick: agency mortgage-backed securities.