Giles Parkinson, a portfolio manager at Close Brothers Asset Management, takes the view that US interest rate movements will matter less for asset allocators next year than the question of whether recession comes to the US.
He says: "When you have a period of slowing growth and rising interest rates, as was the case in 2022, then equity markets typically fall by about 10-20 per cent, which is what has happened. If a recession follows, then you get into the area of a 30-40 per cent drawdown."
Parkinson believes that even if interest rates are cut next year, this won't boost equities if a recession happens anyway.
The latest Bank of America European fund managers' survey indicates respondents are preparing for a short-term lurch downwards in equities in the coming year as a result of company earnings declining, with 72 per cent of respondents thinking that the recent rally in European equities is overdone, and just 3 per cent believing they are undervalued right now.
Further endorsing Parkinson's theory, a majority of respondents (90 per cent) expect inflation to fall over the coming year, and consequently for 10 year bond yields to fall.
Both of those scenarios would usually be expected to boost equity returns, but respondents are negative as they believe company earnings will lead to equities falling rather than rising.
It is within the equity allocations of European fund managers that one can see those various themes coming together, with the number of investors that are overweight to the energy and banking sectors falling to 6 per cent from the previous 26 per cent.
Obviously lower inflation drives down energy prices and reduces the need for rate rises, and fewer rate rises would be expected to be bad for the returns achievable by banks.
In contrast, the equity sectors where the overweights are largest right now are pharmaceutical companies and insurance companies, both sectors which are typically viewed as defensive.