Multi-Asset Investing: Tracing the Growth Impact of US Fiscal Policies
A robust growth backdrop, a key input for cross-asset positioning, benefited from pent-up demand and an accommodative fiscal policy stance.
Multi-asset strategies harness return streams across diverse asset classes, including stocks, bonds, alternatives and options. Investor perception of growth prospects is one common thread in cross-asset performance, because it plays a strong role in driving risk appetite.
Looking back, 2023 stands out for growth that proved surprisingly resilient, given inflation headwinds and the tightest monetary policy in decades. Defying a widely expected recession, activity surprised to the upside. This was especially true in the US, where consensus expectations for real gross domestic product (GDP) now range from 2% to 2.5% growth, a modest acceleration from 2022 and slightly above the long-term average.
In fact, robust third-quarter growth rattled markets, as investor worries swung from a looming recession to an overheated economy and expectations shifted to higher-for-longer rates. Growth should decline toward—or somewhat below—long-term averages, enabling monetary policy to gradually normalize. This would support equity exposure and renewed diversification benefits from government bonds.
Strong Growth Benefited from Pent-Up Demand
US GDP growth averaged 2.9% over the past 12 months, above its 1.9% long-term average (Display). Consumer spending and business investment were modestly above average, but government spending grew by 4.5%, well above its 0.7% average—a sizable boost to above-average GDP growth. We expect all three components to slow in coming months, as pent-up demand and one-off benefits diminish.