Market Returns
While excellent state & local government balance sheet health will remain a tailwind for muni returns, poor valuation prompts us to downgrade the sector from overweight to neutral.
Stocks fare best when there is plenty of slack in the economy and growth is strong and getting stronger. The good news is that the economic growth score for the US in our MacroQuant model is above its historic average. The bad news is that US economy is operating with little slack and sentiment is getting complacent. We recommend that investors maintain a modest overweight to equities for the time being but look to get more defensive later this year or in early 2024.
We build a four-stage business cycle framework based on economic growth and capacity utilization, and then analyze historical returns for most major asset allocation decisions for each stage. Given that we are in the early recession stage (negative growth coupled and an overheated economy), our framework recommends a defensive positioning across all asset classes.
This week’s report examines three potential catalysts that could push Treasury yields meaningfully higher within the next few months. We also consider the rebuild of the Treasury’s cash holdings and its implications for the Fed’s balance sheet policy and financial markets.
In this Month-In-Review report, we go over the latest G10 data releases and rank currencies’ fundamental standing based on our updated macroeconomic model.
An important annual event is when long-time client Mr. X visits BCA strategists at the end of each year to talk about the economic and financial outlook and a write-up of the discussion is published as our Annual Outlook report. Recently, BCA’s former Chief Economist Martin Barnes had the pleasure of a chance encounter with Mr. X at an airport lounge, and this report is an edited transcript of their conversation.
The dollar has entered a structural bear market. Although the greenback could get a temporary reprieve during the next recession, investors should position for a weaker dollar over the long haul.
Innovative Tech will face macroeconomic headwinds in a new “higher for longer” interest regime. Yet, the long-term opportunity of the cohort is tremendous. Investors need to be judicious with the timing of adding new capital to these themes to bolster long-term returns.