No imminent recession threat
•Inflation under control
•The U.S. economy: mid to later stages of the business cycle
•Projected U.S. stock returns over the next ten years: 4.0%–6.0% range
•Projected international stock returns over the next ten years: 7.5%–9.5% range
Recession watch
Key takeaway: 35% chance of a recession over the next 12 months
- The yield curve (as traditionally defined by the 3-month and 10-year U.S. Treasury) briefly inverted in late March.
- A key distinction about this inversion compared with others is, it’s driven almost exclusively by long-term rates dropping below short-term rates.
- We see little evidence that the inversion, in isolation, is signaling a recession in 2019/early 2020.
- The expected easing of global growth in the next two years—driven by a fading boost from U.S. fiscal stimulus and the continued slowing of growth in China—is fraught with economic and market risks.
Traditionally when yield curve inverts before recession, short-term real rates are significantly higher
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