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How many times has the U.S. economy stood at the edge of recession in the last decade, only to pull back? More times than the traditional playbook accounts for, and that discrepancy is the starting point for this research. PGIM Quantitative Solutions examines why late-cycle economies now persist longer and oscillate more frequently than previous models anticipated. The result is a new hypothesis: positioning, not recession probability, is the precondition that matters most for a tradable risk asset decline.
In this research, we introduce the Time Above Trend (TAT) framework as a proxy for that positioning, tests a reversal strategy against the S&P 500 and MSCI Emerging Markets, and outlines how the resulting signal can be implemented as tactical tilts within a Global Tactical Asset Allocation structure, rather than treated as a binary allocation call.
Some Key Takeaways
- The economy has many self-regulating mechanisms that tend to keep it hovering in a late-cycle state – between an expansion and a slowdown.
- Stretched positioning is a key precondition for a tradable risk asset decline. If investors reduce risk before positioning has become stretched, they run the chance of being repeatedly whipsawed.
- The length of time the economy spends growing at an above-trend rate is a good proxy for long positioning in risky assets. Historically, more favorable opportunities to reduce risk have tended to arise after the economy has remained above trend for an extended period.
For Institutional and Professional Investors only. All investments involve risk, including the possible loss of capital. Past performance is not a guarantee or reliable indicator of future results. Any forward-looking statements, including projections or forecasts, are subject to change without notice and are not guarantees of future results. The information contained herein is provided by PGIM, the principal asset management business of Prudential Financial, Inc. (PFI), and a trading name of PGIM, Inc. and its global subsidiaries and affiliates. Please visit Important Disclosures for additional information, including details on non-U.S. jurisdictions. This information is for informational purposes only and does not constitute investment advice, a recommendation, or a solicitation where prohibited. Certain information has been obtained from sources that PGIM believes to be reliable as of the date presented; however, PGIM does not guarantee its accuracy or completeness. Information may be changed without notice, and PGIM has no obligation to update it. PGIM and its affiliates may develop and publish research that is independent of and different from the information contained herein. Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. © 2026 Prudential Financial, Inc. (PFI) and its related entities. All rights reserved.
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