End of the Cycle, Or Just the Beginning? - Q4 2025

End of the Cycle, Or Just the Beginning?

Over the past quarter, the macro environment has been marked by contrasts. Headline growth has remained resilient, but the labor market has clearly softened. Inflation progress has been uneven, and monetary policy has shifted incrementally more accommodative after a prolonged pause. Despite these crosscurrents, risk assets continue to reflect a base case of slow but steady growth. The underlying theme is that both the economy and markets are navigating a narrow path, where even small shifts in data or policy can have an outsized impact on sentiment. 

For allocators, the key question remains: Are we approaching the end of the current cycle, or are we on the verge of a new phase, one potentially driven by productivity gains that could alter the pace, if not the direction, of the cycle? As we approach the end of 2025, we assess whether the economic cycle is ending or its engine is just revving up, and share potential implications for asset allocators.

Additional highlights

• Fixed Income Markets: Finding Opportunities in the Macro Fog
  Despite the macro ambiguity, we believe there are still pockets of attractive carry across fixed income, but selectivity and caution are critical.

• Equity Markets: AI Offers a Rorschach Test for Investors
  The AI theme’s impact on equity markets is transformative yet uncertain and open for interpretation, requiring investors balance optimism with caution.

• Equity Solutions: Our MSCI Rebalance Predictions 
  Our prediction accuracy score came in high for the third quarter in an environment with fewer index changes than the prior quarter.

• Private Credit: Financing the AI Future
  As AI investment accelerates, we believe private credit will play a crucial role in filling the projected AI financing gap. This is creating opportunities for investors, even as the outlook for AI remains uncertain.