One of the most impressive features of the current Fed tightening cycle has been the resilience of the U.S. economy and the associated outperformance of U.S. assets. While we cannot rule out a cyclical downturn in the months to come, we’ve found several factors in the current cycle that have reduced the U.S. economy’s interest-rate sensitivity. This feature has potentially underpinned the resiliency of U.S. corporate profits in the face of higher interest rates and pressure on profit margins. Indeed, our corporate profits outlook is fairly benign in most of our macro scenarios, including our base case of slow growth and elevated, but falling, inflation.

In the concluding piece of our interest-rate sensitivity package, we explore the historical transmission from tighter monetary policy to corporate bond spreads and discuss the respective investment implications under our “weakflation” scenario.

You can now read the full whitepaper at the link below