The most predicted recession in the history of the world has yet to come. US growth is slowing but narrowly positive. Household wealth is steady, workers are fully employed, consumer spending is resurgent, inflation is low, and capital markets have reopened.

The economy’s defiance of low sentiment favored growth investments over real, income, and hedge assets this year-to-date:

• Cryptos (Bitcoin) +70%

• Stocks (S&P 500) +11%

• Gold 0%

• Bonds (US treasuries) -4%

• Real estate (US REITs) -9%

But the darkest effects of tighter money policy take time to appear. 84% of surveyed CEOs expect a recession next year. Anecdotally, most investors we speak with are still bearish.

Household surveys show an unusually wide gap between a positive present state, and negative outlook. Many jilted investors now prefer money market interest to stock market returns – an instinct we think betrays their interests.

We’re watching the rise in long-term interest rates to the highest level since 2007. 10-year treasury yields gained +1.5% this year. The steepening yield curve matters because long-term interest rates tend to be sticky, and more directly affect asset prices and borrowing costs.

The bond market could be telling us that higher interest rates (and positive real yields) are structural features of the new economic paradigm. If the market’s present calm rests on the Fed cutting interest rates next year, rising long-term rates weakens that premise.

What’s around the bend is anybody’s guess. Good portfolios will endure recessions and outgrow inflation in expansions. Soft, hard, or no landing at all – our portfolios are built for all conditions.