It's been a wild month on Wall Street.
An escalating trade war and an inverted yield curve have kicked off weeks of volatility that sent the S&P 500 at the worst of August's sell-off 7% below its record high.
This is a symptom of the new market order that is emerging, according to Ben Kirby, portfolio manager at Thornburg Investment Management.
"The last few years have been periods of high returns and relatively low volatility. I think with the yield curve inversion and the economy slowing, PMI is in contraction in much of the world ... we're entering a period that's the opposite of that. We're going to have lower returns and substantially higher volatility," Kirby said Tuesday on CNBC's "Trading Nation."
A global economy creaking to a halt and the bond market flashing a warning sign have raised the chances of a coming recession, according to Kirby. The spread between the 2-year and 10-year Treasury note briefly inverted last week, a warning sign that investors are rushing to safe haven assets in fear the economy could begin to contract.
"Probably 60% of the time after [an inversion] happens you get a recession within the next 12 months," Kirby said. "When you put it all together, we do have a slowing economy, we do have an economy that's in all-out stimulus mode around the world, but there's a limited amount of stimulus that can actually be applied, so as we do more and more stimulus, it becomes less and less effective."
Pockets of strength, including U.S. job growth and low inflation, should keep a recession at bay for now, Kirby said, predicting a 25% chance in the next year. The odds rise when you stretch that time frame to 24 months, he said.
To hedge against a possible recession in the next two years, Kirby is sticking to stocks that pay investors while they hide out.
"I like dividend-paying equities. To me they're one of the most attractive asset classes today, because hands you win, and tails you don't lose too much," Kirby said. "If stocks keep going up, your dividend-paying stocks will participate in that and ... if stocks decline and we do go into a recession, then your dividend-paying equities can be defensive."
Disclosure: Thornburg Investment Management owns shares of China Mobile, Orange and Home Depot.