Late cycle features at play: more pain, but not the end of the game

• Market sell-off: a late cycle feature where uncertainty due to tariffs, rates and oil prices are sending some red signals. Autumn comes with a change of mood in the market triggered by rising US Treasury yields, amid a hawkish FED committed to avoid any sign of overheating, and uncertainty surrounding the upcoming earnings season. All elements that will keep volatility on the rise over the next weeks.

• Not a scary movie, but be ready for more pain. Yet, we see this as a market correction, rather than the start of a prolonged bear market. We expect some a further down trend also due to the technical reallocation of market risks. Growth areas of equity markets and high leveraged areas of the credit markets with tight valuations are the most vulnerable places at the moment.

• How to face this environment: add duration in US debt, stay diversified in terms of risks, focus on quality and liquidity in credit, go for value (use available liquidity to buy the most discounted names) and stay out of stretched growth areas.

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