Economic Growth
The combined US credit impulse and fiscal thrust indicator will likely relapse in 2024, heralding growth weakness. Stalling US sales volume and falling inflation, combined with sticky labor costs, will herald a non-trivial profit margin compression. The recent increase in Asian exports will likely prove to be a mid-cycle improvement rather than a cyclical recovery.
The market’s pricing of a soft landing means that geopolitical risks are becoming more, not less, relevant in 2024. US domestic divisions will invite challenges as foreign powers rightly fear that US policy will turn more hawkish after the election.
A soft landing can be achieved but not maintained. We are cutting our tactical recommendation on stocks from overweight to neutral and scaling back our long-duration stance.