Powerful trends have transported the world’s major economies back to where they stood just before the pandemic: firmly in late-cycle territory.

In Europe, a strengthening recovery has been derailed by the war in Ukraine. Even as the war reduces growth, it is fueling inflation. And in China, a resurgence of COVID and lockdown policies are eroding growth in that economy.

In the U.S., tight labor markets are magnifying mounting wage pressures, inflation is soaring, and the Federal Reserve is tightening policy. And with supply chain disruptions lingering and costs rising, corporate profit growth has been slowing. Indeed, the U.S. economy contracted 1.5% in the first quarter.

Are we headed for recession? The risk is clearly rising, says Capital Group’s U.S. economist Jared Franz, but much will depend on labor markets and the Fed’s resolve to aggressively reduce inflationary pressures.

“Late cycles are not predictive of recessions, but they do tell you that the economy’s ability to bounce back from shocks is reduced,” Franz says. “The environment is changing rapidly and significant headwinds have emerged. I view this as a time to pursue all-weather portfolios built to withstand a variety of risks.”

The economic environment is changing rapidly, and risks are rising. But signs of growth remain as the world recovers from the pandemic. Maintaining a balanced all-weather portfolio makes sense in any climate. Is your portfolio all-weather? Reach out and schedule your free analysis.

Source: Capital Ideas

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