Global Head of Fixed Income Jim Cielinski explains why he believes positioning portfolios for a downturn feels prudent and investors should resist the temptation to add credit risk too early, but a dovish pivot should not be overlooked.

Key Takeaways

  • While inflation expectations alongside commodity prices have eased, a peak has not yet been seen in headline inflation in the second quarter. However, we should see a peak soon as energy base effects wash out.
  • In our view, access to cheap capital is behind us as liquidity trends continue to deteriorate, lending standards get tighter and the cost of borrowing sharply rises.
  • As demand destruction continues to filter through industries and geographies, recession has become more likely than not in many major economies over the next 12 months.
  • With fundamentals set to weaken, dispersion between the winners and losers could increase, making security selection critical.