07 Jul Market Note: Market Scenarios and Risk Levels
- Recent economic data suggesting real GDP growth contracted in the second quarter has materially increased the potential for a recession this year.
- While we are broadly comfortable with risk levels and positioning, we want portfolios to be able to weather a range of potential outcomes that include a short-term rally, but also an eventual resumption of the bear market and substantial new lows in risky assets.
- The average decline in post-War bear markets has been over 35%. With the current drawdown on the S&P 500 being a little worse than half of that, we want to make sure we are in a position to layer in risk, potentially aggressively, at lower prices rather than be forced to do the opposite.
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