Cyclicals vs Defensives

Investors hope that the ECB rate cuts priced into the curve will be sufficient to achieve a soft landing in Europe. History argues against this view, but will this time be different?

As Trump’s victory odds rise, the underperformance of European equities deepens. How negative would a global trade war be for European assets?

The real threat to European equities is growth, not political risk. How low will Eurozone earnings fall during the coming recession and how much will equities decline in response?

The consensus soft-landing narrative is wrong. The US will fall into a recession in late 2024 or early 2025. We were tactically bullish on stocks most of last year, turned neutral earlier this year, and are going underweight today. We conservatively expect the S&P 500 to drop to 3750 during the coming recession.

The US economy remains on a path towards a recession, most likely starting in late 2024 or early 2025. For now, investors should maintain a benchmark allocation to equities, but employ a barbell strategy of overweighting defensives and materials.