Markets in Motion – Deja Vu

The last couple of months have felt reminiscent of 2022. Since the end of July long-term treasuries have delivered a return of -14.20%, while the S&P 500 has returned -7.69%. Downward momentum has yet to abate, as the technical picture for stocks continues to deteriorate and yields have hit 10-year highs. This sets up tough choices in asset allocation, but we believe presents advantages for tactical strategies.

Macroeconomic Outlook

The US economy is on a knife-edge where weaker growth could tip it into recession while stronger growth could trigger a second wave of inflation. Both outcomes will lead to a recession. But this likely will not happen until the second half of 2024. While the economy has held up past many expectations, a look at the history of recent decades shows that such long and variable lags between policy tightening triggering a recession signal and the recession’s actual arrival is typically longer than 12 months. In other words, just because a US recession has not yet materialized does not mean that one will not strike in the next 12 months.

One look at the US unemployment rate reveals that it is a highly mean-reverting series. When it gets to very low levels, it typically starts rising again. And when it starts rising, it keeps rising: The US has never avoided a recession when the 3-month average of the unemployment rate has increased by more than one-third of a percentage point (Chart 1).

When Unemployment Starts Rising, It Usually Keeps Rising

U.S. Employment Rates

(Chart 1) Source: BCA Research


Historically, financial accidents happen when the Fed raises interest rates. And despite a Fed pause, yields continue to shoot higher. We tend to dislike assets that do not rally on good news and the near-term momentum on yields may likely be to the upside. But the move has also created a valuation opportunity (Chart 2).

US Fed Funds Target Rate

(Chart 2) Source: BofA Global Investment Strategy, GFD Finaeon, Bloomberg

We have had a bearish tilt towards duration the past few years. At this point, however, with the 10-year yield at 4.80%, the risk-reward to owning long-duration bonds has improved. Within our global tactical strategies, we have added to treasuries across the short and long-term. If it becomes clear that the US economy is sliding into recession – for example if jobless claims start to rise rapidly – we will likely lengthen duration further. Over strategic timeframes, we do believe rates are going to be higher for longer, but markets do not move in straight lines and recession or slower growth will buck the current trend.


We believe stocks should rally into the end of the year but are no longer as bullish over longer timeframes because of the macroeconomic outlook. But stocks do not usually start selling off until six months before a recession. Additionally, markets are extremely oversold on shorter timeframes and the next few months have strong seasonality, which could provide tailwinds (Chart 3).

S&P 500 10-day Advanced / Decline Line: 2022-2023

(Chart 3) Source: Bespoke Investment Group

Therefore, we have taken advantage of this sell off to move to a more neutral weight to equities in our portfolios. However, we are prepared to underweight equities when it becomes clear we are sliding into a recession.

Bottom Line

We do not believe this time is different, but this time is longer. A recession can be deferred (and has) but won’t be denied. A decline in bond yields from their recent highs should fuel a blow off risk rally in Q4, but risk assets could weaken in 2024.

Overall, our asset allocation is close to neutral. We will continue to monitor our portfolios as the facts change and will remain tactical as the situation evolves. We believe markets are at a point of inflection and will manage assets accordingly.

Recent Portfolio Changes

Allocations as of 7/22/2023
Changes to Holdings 8/22/2023
Global Tactical Model Exposures as of 10/5/23
Global Tactical Model Allocations as of 10/5/23

You can get more information by calling (800) 642-4276 or by emailing

Photo of John ForlinesBest regards,
John A. Forlines III
Chief Investment Officer

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John A. Forlines, III
Chief Investment Officer

January 2024 Market Commentary

First off … thank you! Another year is in the books and we are grateful to all our Advisors, Fiduciaries, Brokers, and Partners who trust us with your business