PIMCO’s outlook for 2019 calls for a “growing but slowing” global economy, with last year’s economic divergence – in which U.S. growth accelerated as the rest of the world slowed – giving way to a more synchronised deceleration in global growth.

Our updated quantitative models indicate that the probability of a U.S. recession over the next 12 months has risen to about 30% and is thus higher than at any point in this current economic cycle – the second longest on record (see chart below). Even so, our baseline does not include an imminent recession; the models are flashing orange rather than red. Importantly, however, the current market environment makes amply clear that it doesn’t take a recession for turmoil to roil financial markets.

The current U.S. economic cycle is close to the longest on record

Source: PIMCO, National Bureau of Economic Research (NBER), as of 30 September 2018

On top of this, major developed market central banks are gradually removing monetary support, valuations in equities and credit are at or near all-time highs, and political risk looms large across countries.

Against this uncertain backdrop, we see the potential for heightened volatility. We therefore believe that maintaining flexible portfolio construction, with the ability to avoid certain exposures and focus on asset classes and/or sectors that offer value, will be increasingly important as market and liquidity conditions evolve.

Visit our “flexible investing” page to view our range of flexible strategies.

Disclosures

Past performance is not a guarantee or a reliable indicator of future results.

All investments contain risk and may lose value. Diversification does not ensure against losses.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. It is not possible to invest directly in an unmanaged index. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2019, PIMCO.

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