Labor Market
The resiliency of consumers through 2023 has surprised investors. However, consumer strength will fade into yearend as factors supporting growth in income and spending are waning. i.e., job gains are slowing, wage growth is decelerating, and excess savings are running out. Consumers are starting to feel the pressure from tighter monetary policy as financial obligations rise. Hence, as consumer spending decelerates, economic growth will slow into yearend. We confirm our underweight of the Consumer Discretionary sector.
US bond investment takeaways from this week’s PCE and employment releases.
A global recession continues to be likely over the next 12 months. The impact of tighter monetary policy is slowly being felt. Government bonds look increasingly attractive as a safe haven.
In Part 2 of this series, we prescribe the treatment needed to produce a recovery for the ailing Chinese economy. Authorities will only panic and unleash “irrigation-style” stimulus if the unemployment rate rises sharply, or a financial crisis unravels in onshore markets. This is not yet the case.
Stocks should continue to rally in the near term, but investors should prepare to turn more defensive towards the end of the year in advance of a recession in 2024.
