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Markets: Late cycle and more volatile

Stick close to your long-term target asset mix and stay diversified.

  • By Dirk Hofschire, CFA, SVP; Lisa Emsbo-Mattingly, Director; Jacob Weinstein, CFA, Research Analyst, Asset Allocation Research and Cait Dourney, Analyst,
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Key takeaways

  • Around the world, most big economies are in the late phase of the business cycle.
  • We expect financial markets to become more volatile than they have been in recent years.
  • Central bank monetary policy may boost asset prices without necessarily stimulating global economic growth.
  • In this environment, prioritize portfolio diversification.

United States

  • The US is firmly in the late-cycle phase as evidenced by tight labor markets, challenged corporate profit margins, and a flat/inverted yield curve.
  • The US consumer remains solid amid low unemployment—a typical pattern during late cycle.
  • Corporate earnings growth has decelerated due largely to higher wages and a weak global backdrop.
  • The Federal Reserve (Fed) has started to ease monetary policy, although historically rate cuts have been less effective late in the economic cycle.


  • The global business cycle continues to mature, with most major economies in the late-cycle phase and several appearing to be in an industrial production recession.
  • China's economy has stabilized as a result of the past year’s stimulus measures, but growth remains subdued and a reacceleration from its growth recession has remained elusive.
  • Rising trade tensions and higher tariffs, particularly between the US and China, have damaged corporate confidence and added to global-growth headwinds.
  • Overall, weaker global manufacturing and trade activity have shown few signs of abating, and it remains to be seen whether policy easing measures will prove sufficient to incite a sustained global reacceleration.

Asset allocation outlook

  • Consistent with a maturing business cycle, asset-class patterns may become less reliable, warranting smaller cyclical tilts and prioritization of portfolio diversification.
  • The move to a global monetary easing cycle may boost asset valuations and provide support for financial conditions in the near term, but heightened trade policy risks and a multitude of economic headwinds may blunt the ability of monetary easing to stimulate global growth.
  • Overall, we expect the late-cycle environment to provide more volatility and a less favorable risk-return profile for asset markets than during recent years.

Business cycle framework

The business cycle, which is the pattern of cyclical fluctuations in an economy over a few years, can influence asset returns over an intermediate-term horizon. Cyclical allocation tilts are only one investment tool, and any adjustments should be considered within the context of long-term portfolio construction principles and strategic asset allocation positioning.

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