Economy
The market’s pricing of a soft landing means that geopolitical risks are becoming more, not less, relevant in 2024. US domestic divisions will invite challenges as foreign powers rightly fear that US policy will turn more hawkish after the election.
A low multiplier effect of stimulus will reduce the magnitude of the rebound in China's business activities in 2024. The housing market downturn will likely persist, and the ongoing household deleveraging also poses a significant challenge to China’s economic recovery.
The Santa Claus rally has been fueled by investors optimism about a soft landing which is the least likely macro outcome in 2024. A pullback in the market is imminent as the probability of "too hot" or "too cold" will get priced in. We are downgrading Software and Services on a tactical basis to take profits but maintaining a strategic overweight in the same trade.