Buy Gold, Sell Small Caps – PIMCO Warns Late-Cycle Risks Are Rising

Friday, August 17, 2018
By Paul Martin

by Mihir Worah via PIMCO,
Fri, 08/17/2018


At this stage in the cycle, investors should consider inflation risk, market dispersion, recession risk and other key factors we discuss in our midyear update.

We identify five opportunities for the near term as well as provide updated asset allocation views and positioning.

Investment opportunities, from an asset allocation view, include shorter-maturity bonds, gold, and large cap equities.

There are ample signs of change in the wind for investors. The Federal Reserve is raising short-term interest rates, and U.S. inflation is at target for the first time since 2012. The global trade order that has existed for decades is being disrupted. Several economic indicators are running hot (see Figure 1) even as the current U.S. expansion has begun its tenth year. Volatility is higher as some investors price a dire outcome while others are more sanguine, creating relative value opportunities.

In this midyear update to our outlook, detailed in our paper “Singles and Doubles,” we discuss some medium- to longer-term themes relating to late-cycle investing as well as some shorter-term opportunities arising from current market dynamics.

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