In the ongoing Middle East crisis, anti-fragile markets will remain relatively resilient while fragile markets will break. We describe how to draw the distinction. Plus, a new trade is a 50:50 combination of long USD/MXN and overweight Consumer Discretionary.
Avoid EM and DM risk assets. In the near term (one-to-three months), the odds favor US equity outperformance and a US dollar rebound. Nevertheless, the cyclical outlook (nine-to-12 months) warrants underweighting US equities and staying short the greenback.
Iran doesn’t need to sink a single US warship; it could inflict much more damage by sinking the US stock and bond markets by disrupting shipping, trade, and oil tankers with decentralised low-tech drone warfare. We discuss why it is not the direct pain of higher oil prices, but the knock-on repercussions for stock and bond markets that could inflict the greater damage. Plus, a new tactical trade is to underweight Materials.
The turmoil in private credit is a wild card, but our traditional suite of credit cycle indicators does not point to an imminent spread-widening episode. We reiterate our benchmark weightings on Treasuries, investment-grade and high-yield corporate bonds.
Tech has starkly underperformed other equity sectors and the tech-heavy US market has underperformed non-US markets, but global stocks are up and have comfortably outperformed bonds. This pattern of performances is likely to continue through the rest of 2026. Plus, two new tactical trades are: long coffee; and long ETH.
The annual benchmark payrolls revisions revealed that the labor market has been weaker for longer than initially reported. The probability that a crack in consumption is just around the corner is much reduced and we have therefore dialed back our recession expectations. Though our asset allocation recommendations remain neutral across the board, we are more optimistic than we were at the beginning of the year.
The Warsh Fed will run the US economy hot. This is bad for T-bonds and the dollar, but good for stocks. Plus, a new tactical trade is overweight Consumer Discretionary (RXI) versus Industrials (EXI).
The US and Japan are in the same predicament: save the bond market or save the stock market? How this predicament will be resolved is the biggest global macro call of 2026-27. Plus: a new tactical trade is to go short AUD/JPY.
It appears that households have been able to spend more than they’ve earned since May by dipping into their swollen brokerage accounts. Bulked-up equity holdings could herald a future where consumption is more sensitive to stock market ups and downs. That’s great in bull markets but could be an unexpected drag on activity when the next bear arrives.
Contrary to widespread narratives, there is little cash on the sidelines. The aggregate amount of investable funds-to-equity market cap ratio is at an all-time low in the US and very low in other developed markets.