Economic Growth

Notwithstanding periodic short-term rebounds, the path of least resistance for global share prices remains down. The resilience of European and Chinese stocks in the face of the US equity selloff is unsustainable. These economies will deteriorate as US demand – the sole pillar of global growth in the past two years – vanishes and tariffs bite. A new currency trade: go long MXN / short an equal-weighted basket of CAD and the euro.

Although there may be a method to DOGE’s 100-mile-an-hour madness, we think the worries and uncertainty stoked by it and on-again, off-again tariff measures have increased the probability of a recession while bringing forward its start date. We are therefore tactically downgrading equities to underweight and upgrading fixed income and cash to overweight. Investors should pursue a defensive posture.

Colombian financial markets have rallied on the expectation that a right-wing government will be elected in 2026. We take a contrarian bearish stance on the nation's financial markets. Colombia is suffering from two structural macro issues – unsustainable public debt and plunging energy exports – that will not be easily solved by a conservative administration in 2026. Continue underweighting Colombia within EM equity and fixed-income portfolios, continue shorting the COP versus the USD and the CLP, and bet on yield curve steepening.

The US economy is set to enter a recession within the next few months. Stay underweight equities and overweight cash. Look to increase fixed-income duration exposure over the coming months. The euro is likely to strengthen and European stocks should outperform US stocks over the next month or so, but these trends will reverse by the middle of this year.