Economic Recession and Asset Performance

An asset management firm is evaluating the potential impacts of an emerging recession on its clients' portfolios. The firm's chief economist argues that the current labor market indicators suggest a worsening condition, while inflation persists above the target range set by the central bank. The economist highlights that recent yield curve inversions have signaled market expectations of economic slowdown. In response, the firm is considering adjustments to its equity and fixed income allocations. The firm is keen to understand how these macroeconomic factors will influence asset pricing and investment strategy.

Considering the economic conditions described, what is the most likely macroeconomic outcome the firm should prepare for, and how could it influence asset classes?