Looming global recession another threat to risky assets

We think the recent rallies in government bond markets will gain steam next year as inflationary pressures ease and central banks, especially the Fed, turn less hawkish. But, while rising real yields have probably been the biggest headwind for “risky” assets this year so far, we don’t think the lower yields we forecast would give those assets much support. We expect global economic growth to disappoint and the world to slip into a recession, resulting in more pain for global equities and corporate bonds. But we don’t anticipate a particularly prolonged downturn from here: by mid-2023 or so the worst may be behind us and risky assets could, in our view, start to rally again on a more sustained basis. As a result, even though we think those assets will struggle over the next few months, we project them to make gains, albeit fairly small, between now and end-2024.