But that doesn’t mean it’s all gloom and doom. Simona Mocuta, chief economist at State Street Global Advisors, said that while there is a lot of bad news out there, it’s also important to keep the big picture in mind and consider how much of the adjustment has already taken place.

“I don’t think it’s all glass half empty,” she said.

The economy is slowing and a recession is likely, but it has already seen signs of deflation. Whether it’s shipping costs, wage plans, price plans or housing, Mocuta said early indicators are pointing downward.

“I think the big story next year will be about deflation,” she said.

That does not mean we will go from 8% to 2% overnight, but central banks may be closer to their target before many accept it. “Don’t be surprised if, at the end of next year, we see inflation numbers that start with 2,” Mocuta said.

That will create opportunities for investors as they become fearful.

For Mary Hagerman, a portfolio manager and investment advisor with Raymond James, that means keeping clients invested. It made some adjustments earlier this year, reducing equity exposure to Europe and China, and reducing bond exposure overall, moving to short-term products and cash. But she said she didn’t give up the 60-40 portfolio, even if the 40 was mostly cash at times.

Hagerman said we may be at a point where, after a painful year of rising yields, bonds are looking good again.

“This is the time to roll over to longer durations, and investors will be tackling that part of their portfolio,” she said.

For investors starting out now, Daillie said, the 60-40 portfolio looks a lot better now than it did a year ago, now that equities are cheaper and bonds are yielding 4-5%.

Some market strategists viewed this year’s bear market as the end of a period of globalization and low inflation, with a challenging environment ahead. Mocuta said investors everywhere are trying to figure out what the new normal looks like in a world that is no longer globalizing.

But she said that some people are taking the deglobalization story too enthusiastically.

“We tend to extrapolate from moment to moment and forget that technology is very deflationary, that demographics are not improving,” she said. “I’m open to the idea that maybe [we won’t have] sub-2% inflation. Maybe it’s 2.5% inflation. But I don’t think it’s 3%, 4%, 5% inflation on an ongoing basis.”

Hagerman said that means technology is likely to bounce back from its victory this year, although the bounce for energy stocks is unlikely to last. She also said that she is maintaining a global weighting.

“These markets that are under water can bounce back very quickly for reasons that we didn’t see coming,” she said.

Counselor’s Edge is a media sponsor of Inside ETFs Canada.

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