Consumer
Our Special Report is a graphical comparison of the consumer’s position in the current cycle to every cycle from 1960 forward. The bad news is that disposable income is increasingly reliant on government transfers and the labor market is softening. The good news is that the balance sheets of households in the lower half of the wealth distribution have improved a lot.
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.
While we anticipate higher inflation in June, it looks increasingly likely that the price impact from tariffs will be less aggressive and long-lasting than many feared.
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.
This month, we focus on the One Big Beautiful Bill Act (OBBBA). Our assessment in the Alpha report is that there won’t be any remaining alpha to harvest by shorting duration. The team that coined the “Human Steepener” moniker for President Trump is, effectively, throwing in the towel on looking for more upside to yields. There are many reasons for that view, but the main one is that the OBBBA legislation is just not that profligate, especially not relative to the investors’ expectations in the early days of the Trump 2.0 term.
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.