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Recession? What Recession?

18 November 2019

As 2019 has trundled on, global equities have rallied a phenomenal 19% year to date, taking several indices into record territory. Investors have understandably questioned whether these phenomenal returns can continue.

This debate intensified in August, when a flurry of trade-related tweets from Trump, and declining macro data, sent global bond yields tumbling. The spread on 2-year/10-year Treasury yields was pushed into negative territory for the first time since the Global Financial Crisis.

However, a softening in rhetoric more recently, and continuing improvements in economic data (including the German economy narrowly avoiding a technical recession last week), has buoyed investor confidence, sending stocks higher once more.

This rise has been accompanied by a steep fall in the Fed’s probability of recession index earlier this month. Fed Chair Jerome Powell also reiterated his conviction in the strength of the US economy on Thursday at the House Budget Committee.

Signs of Investor Optimism

The increased optimism can be most clearly seen in the bond market, where the Treasury curve has steepened significantly over the last few weeks, with yields tumbling in the short end of the curve and rising slightly in the longer end. This bull steepening has firmly pulled the curve out of inversion territory, with the Treasury spread currently sitting at +21bps, the widest it has been since July.

We expect that if the situation continues to improve, it may benefit risk assets. This view is further supported by the elevated cash levels investment managers currently sit on. Moreover, the FOMO (fear of missing out) associated with managers who have missed out on the previous risk rallies could give equities a final boost coming into the end of the year.

Positioning for Potential Headwinds

An obvious danger to positioning for an equity uptick is the risk of a trade tweet derailing the current rally. Investors may wish to mitigate this risk by positioning themselves in more domestically focused areas of the market, such as mid-cap or small-cap exposures.

Figure 1: US Treasury Yield Curve 1-Month Move

Source: Bloomberg Finance L.P., as of 31 October 2019. Past performance is no guarantee of future results.


European-Domiciled ETP Segment Flows (Top/Bottom 5, $mn)

European-Domiciled ETP Asset Category Flows ($mn)

Sources: Bloomberg Finance L.P., for the period 7–14 November 2019. This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future.

Fund Details

Source: State Street Global Advisors, Bloomberg Finance L.P., as of 31 October 2019.

Annualised Performance

Source: State Street Global Advisors, as at 31 October 2019. Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. All results are historical and assume the reinvestment of dividends and capital gains. Visit for most recent month-end performance. The calculation method for value added returns may show rounding differences. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Some of the products are not available to investors in certain jurisdictions. Please contact your relationship manager in regards to availability.

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