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Talk of early 2024 US rate cuts, which spurred a strong rally in bonds and equities globally, has seen a significant reversal.

There is a lot to ponder as a portfolio manager today. Expansionary fiscal initiatives from the new Chancellor, Kwasi Kwarteng, have heightened worries about a further widening of the already huge UK current account deficit, Sterling has set a new all-time low against the US dollar and the International Monetary Fund, in a very unusual move, has advised the UK government that its November budget presents an early opportunity to “re-evaluate” the new tax measures.

We now have a two-speed economy, and much talk about a disconnect between stock market and economy. But this won’t change our research and stock picking focus

• Investors in the UK and overseas are adopting extreme positioning in their hunt for defensive growth
• The elastic has become very stretched and a sharp rotation could be overdue
• This market dynamic is reminiscent of 1999/2000 whereby ‘old economy’ stocks are discarded in favour of ‘new economy’ stocks

World equity indices plunged during Q4 last year before staging a powerful recovery, regaining virtually all the ground they had lost. This extraordinary turn of events may look irrational, but it tells a coherent story about the fragility of investor confidence as we navigate the end of this economic cycle and approach the US elections in 2020.

In the space of just 12 months, markets have switched from expecting interest rate rises to expecting interest rate falls. Broadly speaking, this means 2019 should be a good year for fixed income. But investors are treading a fine line and need to differentiate between fixed income strategies