Just a few months removed from our spring note in April, we find ourselves navigating a significant shift in the financial landscape. The focus has moved from inflation to growth, narrowing those potential paths we outlined from three to two.
The market is now grappling with two potential outcomes in what we call a "growth scare." In one scenario, the economy achieves a soft landing, with growth slowing but remaining positive. In the other, the slowdown develops into more significant declines, potentially leading to a recession. This regime shift has triggered heightened market sensitivity, causing strong reactions to every new data point. It can also change systematic strategies that have been in place for a few years, i.e. flows of money that can create big volatility as witnessed in the past couple of days.
While this volatility can be unsettling, it's important to remember that it's par for the course when markets adjust to a new landscape. We're moving from a world focused on inflation and rate hikes to one centered on job growth and rate cuts. At Doxa, we saw this coming and believe this growth scare is just that – a scare. The fundamentals remain strong, leading indicators are holding up, and rate-sensitive sectors of the economy are poised to provide a counter-cyclical balance that’ll be a tailwind to growth. However, further downside risk in the labor market is something that we fully appreciate and will be watching. David and I unpack all of these developments in our latest podcast episode “Regime Change” (link below).
With a solid foundation of financial planning and a tested investing framework in place, these market growth scares become mere bumps on the road to our longer-run goals. It's the Doxa strategy at its finest – balanced, patient, and focused on the horizon.
Click the link below or search "Doxa Takes" on Apple Podcasts, Spotify, or Overcast. Enjoy!
