Equities
I am a structural disbeliever in the US superstar stocks because these winners of the previous technology, Web 2.0, are unlikely all to be the winners of the latest technology, AI. But I would suspend my disbelief if the Magnificent-7 index reaches a new high and the bursting AI-bubble configuration is broken. Plus, a new recommendation is to overweight Global Healthcare (IXJ).
The US High Quality (USHQ) portfolio underperformed its benchmark through May, returning 5.1%, whilst its SPY benchmark returned 6.1%. On a trailing three-month basis, performance is also slightly weaker vs. benchmark, with USHQ underperforming by approx. 130bps. Notably, volatility and drawdown remain lower than the SPY, aiding risk-adjusted performance.
In the front section of the chart pack, we review May’s performance and adjust our portfolio positioning.
MacroQuant warns that US equities are pricing in very little economic risk. The model is shunning equities and recommends a large overweight to cash.
MacroQuant warns that US equities are pricing in very little economic risk. The model is shunning equities and recommends a large overweight to cash.
In Section I, Doug warns that US trade policy may produce a considerably worse outcome than investors currently expect. The administration’s apparent 10% tariff baseline is likely to be negative for the US economy and particularly the small business sector. Investors should remain defensively positioned for now, although judicial constraints on the administration’s ability to wage a trade war, if confirmed, would sharply reduce our estimated recession probability. In Section II, Jonathan discusses the arguments in favor and against the view that US inflation will be structurally elevated over the longer term. Our base case view remains that US inflation will not be significantly above 2%, but this view may change if US tariffs are put in place permanently and the US avoids a recession.