Economic Update and Outlook for Quarter 3, 2023

KEY TAKEAWAYS

– 2023 has seen two major narratives: the anticipated global recession and the AI-driven equity rally.

– Equity markets have rallied, fuelled by optimism surrounding AI and specific sectors, while defensive sectors have lagged.

– Discrepancies between market behaviour and leading economic indicators raise concerns and call for a cautious approach.

– The economic outlook points to a slower economy and a potential recession, potentially leading to volatility in equity markets.

– Multiple leading indicators suggest a high probability of a US recession, but this is not yet reflected in market prices.

– Equity markets appear expensive based on various valuation metrics, while bond market volatility warrants caution.