A former Canada Pension Plan Investment Board (CPPIB) CEO and Chair at AIMCo said there is a disconnect in the market regarding the prospect of a soft landing, saying bonds could be a good option for investors given the current cycle.
Mark Wiseman said in an interview with BNN Bloomberg Monday that the U.S. economy has exceeded his expectations when it comes to soft landing hopes and is performing “remarkably well.” However, he added that there is currently a “bit of a disconnect in the markets.”
“I believe that one of two things have to be true. Either we’re going to see earnings expectations lower as the economy softens, or we’re going to see rates being stickier than maybe the market expects, but you can’t have both things,” Wiseman said.
“You can’t have rates coming down and earnings going up and strong economic growth both happening at the same time.”
In a soft-landing scenario, he said he expects rate cuts and corporate earnings to come in a bit lower than expectations.
Despite the U.S. Federal Reserve’s half-point rate cut last month, Wiseman said he thinks the Fed will be cautious going forward in order to avoid reigniting inflationary pressures amid a job market that remains tight.
Given the current easing cycle, he added investors may want to re-evaluate their portfolios.
“If we’re into an easing cycle, I do think you have to think tactically about your portfolio. I think if you want to look at bonds, they suddenly become more attractive in an easing cycle and equities become relatively less attractive potentially in an easing cycle depending on what you think is going to happen and the reason for it in terms of earnings,” Wiseman said.
“So, I think that smart investors tactically are looking at these signals and readjusting their portfolios.”