CIO update – is the US heading for recession?

The question of whether the US is heading for recession may seem simple but it's impossible to answer with certainty. One reason why it’s so devilishly difficult to give a definitive answer to is the contradicting data.

In March, the University of Michigan’s Consumer Sentiment Data fell to 57 – one of its lowest readings. The survey reflects consumers’ feelings about their personal finances and the economy. This ‘soft data’ – forward-looking sentiment – suggests consumers were feeling significantly nervous amid US President Donald Trump’s initial tariff announcements against Canada, China and Mexico.

In Q4 2024, consumer spending accounted for 68% of US GDP, highlighting the importance of the US population continuing to spend their money.

But in contrast, retail sales figures for March showed a booming increase of 1.4% on the month, according to the Commerce Department. This ‘hard data’ – verified backward-looking figures – is being questioned on whether it’s been impacted by front-running purchases before tariffs take effect on prices.

However, that would not explain the 1.8% increase in spending at restaurants and bars, which was the biggest rise since January 2023.

Eating, drinking and making merry

March 2025 saw spending on eating-out grow at its fastest rate since the beginning of 2023.

Past performance is not an indicator of future performance and should not be relied on as such. The value of investments can fall as well as rise, and you may not get back the full amount you invest. Data accurate as of 16/04/2025.

Historically, ‘hard data’ has been much more reliable at calling a recession, though admittedly slower moving.

For now, we continue to take comfort in the actual signals (hard data) and eschew the noise (soft data). No recession remains our base case. However, it’s worth explaining that the situation remains incredibly fluid. The balance of probabilities still supports a constructive view on the future, especially when considering our long-term mandate.

In short, we currently don’t see an immediate need to change our asset allocation.

We believe our global approach to investing best reflects the global nature of markets. Our investment strategy is structured on our anchor and cycle process:

Anchor – our long-term focus – identifies a depreciating dollar and an unusual positively-correlated stocks and bonds market. This is why we have utilised a sterling-hedged position within our equity allocation while also investing in a liquid alternatives fund within our bond allocation as it’s not correlated with either market.

Cycle – our short-term focus – recognises the attractive expected return from global equities this year which is why we remain overweight. Additionally, we hold an underweight position in government bonds, led by Japan due to it being the only major developed region which is in a rate hiking cycle.

As mentioned before, markets have been incredibly reactive and the current situation remains fluid. We are constantly monitoring the situation, analysing the stability of the economy, and are poised to make any changes should our investment process deem it necessary to do so.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs. This article should not be taken as advice.