Business performance and the unemployment rate disappointed in the US, with many believing these indicators to be amongst the triggers of the equity selloff. According to RBC Wealth Management, the risk of a recession is on the rise.
While most banks are currently calling for no recession in the US, RBC Wealth Management has issued a relatively pessimistic view, insisting the outlook is uncertain. It cites a prediction by its asset management arm which is placing recession risk at 40 percent, up from the previous forecast of 35 percent.
«[I]t’s unclear whether this will end up being a brief hiccup, a GDP 'growth scare,' or a full-blown recession,» the Canadian private bank said in a note. «But if the data deteriorates further and eventually pushes (three) other leading (recession) indicators (out of the seven) to red, the likelihood of a recession could rise.»
Defensive Equity Positioning
The bank advises investors to exercise caution, holding no higher than market weight positions in US and global equities in portfolios for the time being. Within the asset class, it suggests limiting growth stocks to quality growth while it finds Japanese equities attractive at current valuations.
«We believe there are enough lingering risk factors associated with this selloff to prompt a review of equity portfolio positioning,» the note added.
