CoreMacro

We maintain our 12-month US recession probability at 60%. However, until the “whites of the recession’s eyes” are more clearly visible, we would refrain from moving to a fully defensive stance.

We will only move to a fully defensive stance if the “whites of the recession’s eyes” appear. So far, they have not. We will be increasingly looking to our MacroQuant model for guidance on when the next turning point in markets may come.

Special Report

Artificial intelligence will destabilize domestic politics and international security. States will try to adopt more creative fiscal policy, including by raising taxes on Big Tech.

The fact that the US economy has been slower to deteriorate than in past cycles is entirely consistent with our kinked Phillips curve framework. We will be looking to our MacroQuant model for guidance on when to turn fully defensive.

We will abandon our recession call if US economic data show clear signs of stabilization over the summer months. For now, that has not happened. Maintain a modest underweight to stocks but look to get more defensive if MacroQuant’s equity z-score falls below -1.

Investors should modestly underweight equities in their portfolios and look to turn more aggressively defensive once the whites of the recession’s eyes are visible. We think that will happen within the next few months.

Special Report

Provided that humanity can overcome the existential risks posed by AI, real incomes will rise. Although most workers will ultimately gain from the transition to an AI-dominated economy, the biggest winners will be those who control the land and the natural resources beneath it.

The US economy has held up better so far this year than we had expected. For the time being, investors should remain modestly underweight equities. A more aggressive underweight would be justified only once the “whites of the recession’s eyes” are visible.

Rising bond yields may present an even greater danger to the global economy than the trade war. With equity valuations no longer discounting much economic risk, investors should position themselves defensively.

Special Report

Trump’s signature bill is surprising to the upside with budget deficits, as predicted. Some version is guaranteed to pass – but higher bond yields and inflation will weigh on the economy and stock market.