Historical analysis often provides valuable insights for constructing a plan of action. This is especially true when experiencing extreme events. Accordingly, we have run a series of analyses examining comparable market patterns over the past 75 years.

Our view is that the most likely path going forward involves a period of consolidation after the initial sell-off, followed by a renewed market rally. Though the phase preceding the rally is likely to exhibit significant volatility and extend over several months, price movements generally remain within a reasonably defined range. Further declines can and do occur, but they don’t typically result in meaningfully lower levels.

Reducing equity exposure now could prove to be an error over the long term. Consequently, we are actively seeking opportunities to enhance our modest overweight position in equities within allocations.

Fixed income credit spreads increased moderately in the first quarter as concerns over economic growth slowing increased and equity markets declined amid greater volatility. Spreads, however, remain below long-term median levels.

Economic growth has been solid, resulting in healthy corporate earnings and balance sheet fundamentals, which support lower spreads levels.

We expect slower growth and sticky inflation but with increasing tail risks of a more meaningful downturn. We also expect defaults to remain at relatively moderate levels. However, the risks are skewed toward episodic volatility and wider spreads with tariffs likely to dampen growth while pushing up prices.

We are positioned roughly neutral credit risk versus our long-term strategy within broad fixed-income portfolios. We favor higher quality fixed income such as investment-grade corporates, securitized credit, and the higher rating tiers of high yield. We also favor high-quality collateralized loan obligations (CLOs) over leveraged loans. Securitized credit such as mortgages also look attractive.