- Markets have rallied in recent months, optimistic about declining inflation and the end of the interest rate tightening cycle and are pricing a “soft landing”.
- We believe that Central Banks will move from one huge mistake to another and hold rates too high for too long, leading to a ‘classic’ end of cycle recession.
- While there have been several earnings downgrades of late, we are only at the start of the economic and earnings downturn and current market forecasts for a mild decline followed by an earnings recovery next year are too optimistic.
- Watershed Multi-Asset Portfolios have continued to deliver strong outperformance over the past year, but we are continuing to reduce equity market exposure (and reduce exposure to cyclical or economically sensitive sectors and companies), build cash and progressively increase government bond exposure.
- With significant cash available we are now waiting for the right shot and the best time to buy growth assets is during a recession.
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