Our latest thinking on the economy

Find out how the Strategic Advisers team is responding to late-cycle market volatility.

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Key takeaways

  • We do not believe that the US is in recession, but instead experiencing a late-cycle expansion, which has historically led to positive returns for stocks and bonds.
  • Unemployment remains low, inflation appears to be slowly easing, consumer spending and corporate profits are positive but at a more moderate pace.
  • The Fed recently raised interest rates to fight inflation and may continue to do so into 2023, but not much more than they already have.

Global stocks and bonds are still considerably lower than they were at the start of the year. But since the end of September, global stocks have rallied more than 10%, and investment grade bonds have returned over 4% as fears of high and persistent inflation eased.1 This may have surprised some investors, given some news headlines around recession concerns and other challenges for markets. However, we offer 3 reasons why stocks and bonds may continue to find support.

  • The US economy and corporate profits are still modestly growing.
  • Inflation pressures may have started to ease, as commodity prices are lower than this summer.
  • The Fed may not raise interest rates too much further than they already have.

This backdrop has also helped bonds stabilize the last few weeks, and bond yields have risen to near their highest levels in nearly 15 years.2 These higher yields have led to an improved outlook for bond investors, as they may benefit from higher income over the coming years.

Despite the recent run up in stocks and bonds, we still believe that the US is experiencing a late-cycle expansion. Historically, rising stocks and bonds are typical during a late-cycle expansion. However, while surprising rallies are common during this phase, so are periods of volatility.

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Current positioning and recent activity of accounts

Here are some steps Strategic Advisers, LLC has taken to help manage risk within well-diversified managed accounts as we’ve moved through the late cycle:

US and non-US stocks

  • Reduced exposure to US and non-US stocks, as a maturing business cycle has historically led to more bouts of market volatility.
  • Added slightly more exposure to value stocks than growth, as value stocks typically outpace growth stocks when inflation is high and interest rates are rising.


  • Added to high quality bonds, as higher yields may lead to stronger returns from bonds over time.
  • Reduced exposure to high-yield bonds, floating-rate bonds and global bonds, as we believe these may experience more volatility as the business cycle matures.

Commodities, REITs, TIPS, and Alternatives

  • Held positions in commodities and US Treasury Inflation Protected Securities (TIPS) largely since 2020, as these investments have historically held up well during periods of higher inflation.
  • Sold out of exposure to REITs, which typically experience more volatility as the business cycle matures.
  • Added exposure to alternatives in some accounts, as we believe these types of investments can provide returns that are less correlated to traditional stocks and bonds.

Tax efficiency

  • Managed for tax efficiency in taxable accounts that apply tax-smart investing techniques,3 particularly through tax-loss harvesting during periods of stock market volatility.

The defensive portfolio strategy continues to temper volatility during market drawdowns. As always, these portfolios remain defensively positioned, and we have also made the following adjustments over the last few quarters:

US and non-US stocks

  • Slightly reduced exposure to developed international stocks in anticipation of rising volatility in those markets as the business cycle matures.
  • Shifted a portion of low volatility stocks into high quality, dividend-paying stocks, which we believe increases defensiveness.


  • Reduced exposure to US Treasury bonds in favor of more diversified high-quality bonds in an effort to take advantage of higher current income resulting from rising interest rates.
  • Maintained a significant allocation to US Treasury Inflation Protected Securities (TIPS), as these investments have tended to provide protection during periods of rising inflation.


  • Increased exposure to alternative investment strategies to help reduce volatility, as these have historically generated different return patterns than traditional stocks and bonds.

Make a plan, stick with it, and stay invested

Market conditions can change quickly, and historically, the market has sometimes rallied even as news headlines may have felt discouraging. Making a plan and staying invested can help you reach your financial goals.

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