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Investors’ Outlook: Connecting the dots
Multi Asset Boutique
Key takeaways
- The global economy has held up well, though we believe growth will lose some momentum from here amid less support from central banks and limited scope for further fiscal stimulus. Even so, we don’t expect the slowdown to tip the economy into recession.
- Given the US Federal Reserve’s (Fed) dual mandate, we believe softer inflation and a cooling labor market give it good reason to stay put, with the bar for interest-rate hikes high.
- Vontobel’s Multi Asset Investment Committee has upgraded gold to overweight from neutral and reduced its exposure to government bonds to underweight from neutral.
NOTE: Portfolio allocations, characteristics, and holdings subject to change.
Connecting the dots
As this publication returns from its summer break, there are plenty of dots to connect. But they don’t necessarily all add up to the same conclusion.
Take the economy, for example. Dr. Copper1 would have us believe it is booming, buoyed by demand for data centers, power grids, and artificial intelligence (AI) infrastructure. The University of Michigan Consumer Sentiment Index, on the other hand, has been telling us the opposite for years, repeatedly pointing to a recession that has yet to turn up. Consumer spending has held up well, and the K-shaped economy2 helps explain why, as wealthier households have continued to spend,3 while those on lower incomes have felt much more of the squeeze.
A few other worries for investors have receded for now. Private credit is unlikely to be the domino that topples things over, in our view. The market is vigilant while the sector digests some bad loans and demand from borrowers is moving back toward banks and public markets. Traffic through the Strait of Hormuz has picked up a bit, taking some of the sting out of growth fears. And the perennial question of how long the AI capex boom can last has, so far, been answered by earnings. Concerns about a rate hike by the Fed at its upcoming September meeting had dissipated amid weaker nonfarm payrolls and lower-than-expected inflation, but Chair Kevin Warsh's more hawkish speech at the Jackson Hole symposium put a hike back on the market's table.
We also see some clouds on the horizon. US retail sales have disappointed for two consecutive months, and while two reports do not a downturn make, it gives us another reason to keep an eye on the consumer.
The other signal that’s giving us pause is coming from the bond market. Long-term yields have climbed to multi-year highs, and US Treasury Secretary Scott Bessent is trying to push back by doubling the size of planned buybacks of longer-dated bonds to ease some of the pressure. Even so, investors are demanding more compensation to hold longer-duration debt amid concerns about large deficits and inflation. The resulting rise in the term premium4 is one of the reasons why we’re seeing a bear steepening5 of the yield curve, which historically hasn’t been a very positive sign for equities.
For now, our equity overweight stays in place, and we’ll see how much equities can torque the returns from here. But we do believe it’s prudent to look for more potential defensive assets to help balance risks in portfolios, which is why we’ve upgraded gold, as we believe it’s poised to benefit from a potentially weaker US dollar and also provides a hedge against geopolitical risk.
In this Investors’ Outlook, we take a closer look at how the Fed might change under Warsh (who would probably rather do away with one particular set of dots), explain what’s been going on in the bond markets, and share our views on the yellow metal.
The dots may not all line up neatly, but we’ll keep connecting them to help our clients make sense of what may come next.
1. Dr. Copper is a nickname for copper because it has been viewed as a useful barometer of the health of the global economy due to its wide use across construction, manufacturing, and infrastructure.
2. A K-shaped economy is one where different groups move in opposite directions. Some prosper (upward arm of the K), while others fall behind (downward arm).
3. Source: Reuters article, published July 23, 2026. https://www.reuters.com/commentary/reuters-open-interest/americas-mass-affluence-is-bigger-than-you-think-2026-07-23/
4. The term premium is the additional yield investors demand for holding a long-term bond rather than repeatedly investing in short-term bonds, compensating them for interest rate, inflation, and uncertainty risks over time.
5. A bear steepening occurs when long-term bond yields rise faster than short-term bond yields, making the yield curve steeper. It’s called “bear” steepening because rising yields mean falling bond prices, which is bearish for bonds.
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