Multi Asset Boutique
Fundamental strategies to protect and grow investors’ assets in their chosen markets.
Investors’ Outlook: Seeking stability
Multi Asset Boutique
Key takeaways
- The conflict in the Middle East exacerbated fears of an oil shock akin to that in the 1970s. If it stays contained, we expect the oil price impact to be moderate. If the conflict spreads, a major oil shock cannot be ruled out.
- Investors trying to gauge the state of the US economy have been faced with mixed signals. Better-than-expected economic data pushed Treasury yields to the highest level since the global financial crisis – and rising bond yields usually break something along the way, though it’s hard to predict what and when.
- After a decade of robust growth, the world finds itself in an economic environment that is vulnerable to inflation and geopolitical risks, as seen during and in the aftermath of the Covid-19 pandemic, the war in Ukraine, and the recent conflict in the Middle East. How does quality investing fit into this environment? Our Multi Asset Boutique examines this investment philosophy.
Seeking stability
In early October, the latest violent conflagration in the Middle East captured the world’s attention, along with growing concern over the escalating human toll and the conflict spreading to the wider region.
As a result, investors increasingly turned to safe-haven assets, such as gold or the US dollar, and the financial community is keeping a sharp eye on oil prices and a possible flareup in inflation. We take that position as well and believe it’s best to remain cautious in our positioning and carefully monitor not only the geopolitical situation but also what kind of economic damage the currently tight financial conditions bring before making any moves.
We also need to consider the broader economic backdrop. Investors trying to gauge the state of the US economy have faced conflicting signals. It’s clearly going strong, resisting a downturn so far. Some companies, particularly consumer-related ones, have been beating expectations and raising their forecasts. On the other side of the coin, both corporate defaults and consumer-loan delinquencies are starting to spike higher. The job market and consumers have seemingly shrugged off the rate hikes, while the housing market is feeling their sharp sting. And every data point that underlines the ongoing strength of the US economy puts off the idea of rate cuts, keeping Treasury yields as high as they are.
The mixed signals have investors puzzled and torn. Some are more bullish, expecting a short and shallow recession that could potentially present pricing opportunities. Others are waiting for the other shoe to drop, as they feel we’re currently in the eye of the storm and things will still go south. We reiterate our recession scenario and believe that either way, it’s too early to step in and make changes to our portfolio.
As we approach the final stretch of the year, it’s worth mentioning that bond markets have had to endure yet another painful year, but the question now is whether yields have peaked. Billionaire investors Bill Ackman and Bill Gross both recently closed out their bearish bond views, citing a slowing economy and an anticipated recession, respectively.
In this Investors’ Outlook, you can find an analysis of the conflict in the Middle East and a look at the implications for investors, an examination of quality investing as an investment philosophy, and our views on gold.
We remain vigilant and are ready to adapt our portfolio to changing market dynamics in the face of economic and geopolitical challenges.
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