- This article is an update of last year’s Core Matters “How do assets perform in a maturing business cycle” following the significant downward revision of US pre-tax corporate profit data since Q2 2016 (on average by -6% and -11% in Q1 2019).
- Consequently, our Profit Margin indicator suggests that we have entered into a Margin Recession since Q4 2018.
- Second, our US Recession indicator, based on broader economic variables, shows only a 35% chance of a recession, as highlighted in the Focal point “Recession risks are limited, but policy responses too”.
- Third, current low nominal and real US 10Y yields have been associated in the past with positive quarterly relative returns of equities over bonds not only on average, but also during drawdowns.
- Overall, we have to be careful about the evolution of corporate profits, but given the very loose financial conditions we are still constructive on equities.