Relative Value & Tactical Asset Allocation - Q1 2023

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Jun Jiang
JAN 11, 2023

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Key Takeaways

  • U.S. recession risk in 2023 has increased; we expect inflation to peak, the Fed to pivot, and the yield curve to remain inverted.
  • We maintain our risk-off view for asset allocation, prefer up-in-quality credits, and underweight risky assets. Cash may outperform equity in the next couple of quarters.
  • Long-duration and safe-haven assets, e.g., Treasuries and munis, are preferred, considering our view on recession risk and the potential for lower yields.
  • The stage of the current credit cycle may turn in 1H 2023.
  • The housing slowdown has started, but healthy consumer balance sheets, constrained housing supply, and strong demand should limit this risk.
  • The outlook for commercial real estate has softened somewhat. The agricultural credit cycle has peaked, but we do not expect an uptick in losses.