Five Key Takeaways from PIMCO’s Cyclical Outlook: Synching Lower

Our long-standing views on risks to the status quo are being priced into financial markets, with heightened volatility one indicator. We believe the global economy is past peak growth in the cycle, central bank support continues to be reduced and political risk looms large across countries.

As we discuss in depth in our latest Cyclical Outlook, “Synching Lower,” five key macro debates are likely to shape the economic and market outlook for 2019:

How late is it in the cycle?

Our updated quantitative models indicate that the probability of a U.S. recession over the next 12 months has risen to about 30% recently and is thus higher than at any point in this nine-year-old expansion. Even so, the models are flashing orange rather than red. A more qualitative analysis corroborates the quant models: We currently do not see signs of overheating in labor or goods markets that have heralded some recessions in the past, nor the overspending or credit excesses that have preceded others. Importantly, however, the current market environment makes amply clear that it doesn’t take a recession for turmoil to roil financial markets.