Will the current base scenario for 2023 materialize?

In an extremely interesting article, PIMCO has analyzed the historical returns of various asset classes in different scenarios regarding Fed policy and US growth since 1950. If the current baseline scenario for 2023 materializes - which is also shared by FINVIA - and the Fed does not raise rates for at least six months and the US economy enters a recession, the data suggests that 10-year US Treasuries will not return anything over a 12-month period after the last rate hike, while the S&P 500 could experience a significant decline (see chart below). However, if the Fed reacts quickly and cuts rates within six months of the last rate hike, equities could rally over the next 12 months, with bonds still outperforming equities. Overall, this historical analysis recommends cautious positioning in a recessionary environment, even after the end of a rate hike cycle. Although equities have tended to rise in all growth scenarios after the policy rate peak, they have also typically experienced a decline as the economy approaches a recession.