“It’s really up to the Fed to manage those expectations in the next two months,” said White. “Our base case is that economic growth will moderate. Basically, what we’re seeing right now is a manufacturing recession, akin to what we saw in 2019. So, it’s not a broad-based recession. But, to the extent that the service economy could react to more hawkishness and slow to anywhere near the same extent as the industrial economy, then you’d have a broad-based recession. So, right now, I think the service economy is pulling a lot of weight and we are still putting our odds in favor of the broader economy and having a soft landing.”
While the markets have priced in most of the anticipated hikes, White expected next week’s announcement to be accompanied by the Fed message that it will be data dependent going forward. He anticipated that it could say: “We’re no longer going to be pressing ahead with very hard and vigorous hikes. We will now wait to see what the effect the past hikes have on the economy and monitor and apply accordingly.’”
Given the fact that, despite the recent rally, volatility will probably return more frequently, he suggested advisors reassess their portfolios to see what is happening on the up and down sides.
“It’s an opportunity to find those parts of the portfolio that have behaved with a little more volatility than they’d like,” he said, adding that the Fed may continue to be more hawkish, which could continue to impact markets. “Tactically, we have hedges in place for the downside, but we would be looking for economic growth to slow down. Our base case is a softish landing for the economy and a reacceleration for asset prices into year end. But, tactically, we’re still a little cautious.”
Given this year’s unexpectedly severe market shock to the typical balanced investor plus aggressively rising rates pushing bond prices down, White noted that multi-asset strategies have become a more popular option for advisors looking for better investment returns.
