GeoMacro

The decision by GeoMacro team on July 2 to short USDJPY and underweight equities has proven to be prescient. We still do not like the market setup from here on out. A recession would, obviously, be negative for risk assets. But even if investors avoid that scenario, the transition from cash- to leverage-driven growth is unlikely without a significant Fed rate-cutting cycle.

The war in the Middle East is expanding, upgrading our subjective odds of a major oil supply shock to 37% and underscoring our 60% odds of Republican victory in November. Volatility should spike again as investors contemplate the prospect of rising oil prices amid slowing US and global growth. Tactically investors should stay overweight energy stocks relative to other cyclicals and favor oil producers in the Americas rather than Middle East.

Republicans are favored but the election is still competitive. Equities, corporate credit, and cyclical sectors will fall until policy uncertainty is reduced.

Special Report

The Trump trade is just a trade, not an investment, and a risky trade at that. It wagers simultaneously on a soft landing and a Trump victory. Yet Trump's victory is more likely amid slowing economic growth than a soft landing. Investors should position for the slowdown first, then the trade shock, and only then take on more risk in the form of “Trump trade winners.”

Special Report

Oil markets will not be impacted by Venezuela in the near term, but by shocks from the Middle East. Maduro’s ability to stay in power in the short-term removes an avenue of oil supply relief. The same avenue is cut off if Trump is reelected. Geopolitical shocks in Venezuela could present tactical buying opportunities for Chile, Peru, and Colombia.

Investors should focus on growth concerns rather than the “Trump trade.” Bond yields will fall in the short run due to cyclically disinflationary economic slowdown, rather than rise in anticipation of a Republican full sweep and inflationary policies, which are likely but not yet a done deal.

President Biden has announced his withdrawal from the presidential race. The news will no doubt come to dominate the news cycle in the upcoming week of July 22, which is unfortunate as it will drown out some important developments from the preceding week.

Investors should overweight US assets and de-risk their portfolios in anticipation of a major increase in policy uncertainty and geopolitical risk surrounding the US election and its global ramifications.

The cyclical economy is slowing today. Republicans are now more likely to win a full sweep, crack down on immigration and trade, and at least modestly stimulate the economy. Uncertainty and volatility will rise.

Today’s attempted assassination against President Trump challenges the consensus view. It will ensure that President Trump’s supporters are highly motivated for the upcoming general election. And it may return many supporters who had drifted away from the former president back into the fold.