Labor Market

The US economy has never entered a demand-driven recession without labour demand running below labour supply and without the job vacancy rate running below the unemployment rate. Right now though, US labour demand is still running 1.7 million workers above labour supply, and the job vacancy rate is running comfortably above the unemployment rate. This suggests that the labour market is still supply-constrained, and that a demand-driven recession is not imminent. We discuss the investment implications. Plus, more about our ‘trade of the century’: long cotton versus coffee.

The market reaction to this afternoon’s Fed meeting looks overdone. Investors could be in for a hawkish surprise when it becomes apparent that the Fed won’t ease policy into higher tariff-driven inflation prints.

A falling stock market and sticky bond yields represent the worst of both worlds for investors. We interrogate why bond yields haven’t dropped more given the large selloff seen in equities.

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.

This morning’s employment report showed solid job growth, but recent consumer spending indicators are more concerning. The risk of recession starting within the next few months has increased. We suggest some important indicators for investors to track in the current environment.