“The dominating performance of US equities for more than a decade could be ripe for reversal,” RBC’s Eric Savoie and Dan Chornous write.

RBC Global, which had about C$540 billion ($408 billion) under management as of Oct. 31, is entering the new year with a neutral positioning on stocks and has raised its recommended allocation to fixed income to 38.5%. That’s up from 37% at the start this year, as higher yields have made bonds more attractive.

It’s a bet that will pay off if inflation continues to decelerate or if the firm’s recession call materializes. RBC’s forecast is in contrast to the consensus of economists surveyed by Bloomberg, who expect the US economy to grow 1.3% next year without any quarters of contraction.

Lascelles emphasized that he believes any recession will be a mild one, without the high level of unemployment that has accompanied past downturns. The issue for equity investors is that even a relatively shallow recession will erode corporate earnings.

While the US has sidestepped an economic contraction so far, it’s too early to look at the data and say the Fed has managed to avoid one altogether, he said.

“It’s kind of impossible to differentiate between a mature soft landing, and an early hard landing,” he said. “Those often look very similar.”

This article was provided by Bloomberg News.

 

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