Economic Cycle - where are we?
The economic cycle
Insights
CONCEPT
This is the master MAP for our investment portfolio, displaying the exact GPS coordinates of where we are within the economic cycle. The coordinates are redefined daily on the basis of 30+ key macro and market variables analyzed by Cartesio. Every cycle phase dictates a unique set of winning and losing assets, pinpointing our coordinates is the first step in architecting the optimal asset allocation for the current regime.
CURRENT READINGS
- Europe - maturity phase: earlierGrowth stabilizes after its peak while unemployment should be at its lowest. This tends to be a sustainable phase of growth that normally lasts long before a potential contraction. Rising inflation and tightening monetary policy tend to be part of this phase.
- US - maturity phase: earlierGrowth stabilizes after its peak while unemployment should be at its lowest. This tends to be a sustainable phase of growth that normally lasts long before a potential contraction. Rising inflation and tightening monetary policy tend to be part of this phase.
MARKET IMPLICATIONS
Economic cycle refers the natural fluctuation of the economy between periods of expansion and contraction, driven by shifting levels of growth and inflation. Where we are in the cycle matters a lot for defining the optimal strategic asset allocation of our investment portfolio.
Europe and US: when the cycle reaches maturity, equity exposure should remain elevated (stocks are historically resilient in this phase) while focusing on the next set of leaders from quality to cyclicals, broader international exposure and large caps; exposure to defensive assets such as gold or bonds should be limited but present, with longer-dated if inflation is not an issue, or shorter dated if it is.. Cartesio leverages such insights to determine: (1) the final asset allocation of our cycle-tilted model portfolio and (2) the strategic asset allocation of Pantarai ADAPT, used as anchor to fine-tune after reading other market signals including sentiment, the price momentum of key assets and additional macro dynamics.