Equities

We consider several uncertainties in this week’s report, from the interest rate outlook to the source of the mountain of cash households have amassed since the pandemic began. We have not adjusted our tactical asset-allocation recommendations but will do so soon to align with the defensive cast of our cyclical recommendations.

We are approaching another phase transition from boom to bust. Stocks should rally into year-end, but investors should look to reduce equity exposure early next year while increasing bond exposure.

In financial systems, cracks typically begin on the periphery and then expand to the center. Hence, the ruptures on the fringes often act as an early warning. These fissures tend to widen and spread to the core, causing a breakdown in the S&P 500. Investors should consider buying US Treasurys aggressively when the S&P 500 slips below 4,000.