Cyclicals vs Defensives

Clients are increasingly more positive about the US economy, but there are no signs of exuberance. The rally could continue as the majority is not fully invested. Financial conditions have already eased, and the Fed is unlikely to surprise on the upside but will deliver a promised cut this summer. CRE is a still pain point of the US economy. We are not bearish, but after a fast and furious rally, markets are fragile.

We are pushing back the anticipated start date for a Eurozone recession and assessing how it affects our equity stance.

MacroQuant upgraded equities to overweight in February on a tactical short-term (1-to-3 month) horizon, but it continues to see downside risks to stocks on a medium-term (12-month) horizon. Consistent with the model’s relatively somber medium-term growth outlook, it sees more downside for bond yields on a 12-month horizon than on a 1-to-3 month horizon.

The ECB will begin cutting rates in June, what does this start date imply for the yield curve and European cyclicals?

The market will eventually be forced to react to rising odds of a sharp US national policy reversal. Investors should overweight government bonds and defensive equity sectors.