Investment Strategies

Getting a Read on the Business Cycle

Three main economic indicators can inform where we are in the business cycle. Portfolio Manager, Multi-Asset Strategies Erin Browne discusses how these factors influence PIMCO’s asset allocation decisions.

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There are three main factors that PIMCO uses to assess the business cycle. The first is changes in growth, the second is changes in inflation, and then lastly, changes in financial conditions. We think that it's really important to focus in on these three characteristics of the business cycle because they're really important in informing us how we should trade and how we should align our asset allocation portfolios.

As we move later business cycle, keeping an eye on the recession risks and the recession probabilities in our models is also really important, and although we think that the recession probability over the next 12 months is in the 20 to 30 percent range, as this indicator starts to pick up and we see recession probabilities increasing meaningfully, it will inform our decisions from an asset allocation perspective.

Also, as you move later business cycle, volatility tends to pick up within portfolios, and this makes it increasingly more difficult to perform with a buy and hold strategy. So being nimble, being dynamic is really important, and this is why we think at this point in the cycle it's really important to have dynamic asset allocation managers who can properly align your portfolio given the risks at hand.  

As a result of this, I think it's really important to remain actively managed within your asset allocation portfolio to take advantage of some of the idiosyncratic risks that emerge as we move later cycle and throughout a higher volatility environment.


All investments contain risk and may lose value. Management risk is the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results, and that certain policies or developments may affect the investment techniques available to PIMCO in connection with managing the strategy.

There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.


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