Trade

The fact that the US economy has been slower to deteriorate than in past cycles is entirely consistent with our kinked Phillips curve framework. We will be looking to our MacroQuant model for guidance on when to turn fully defensive.

US equity investors should heed warning signals from US corporate bond yields. There are early red flags for EM share prices. Global trade will shrink in H2 2025. China’s economic tailwinds from H1 2025 – fiscal and export frontloading – are coming to an end. 

Despite macro headwinds, the OBBBA clearly favors Industrials, Financials, and Consumer Discretionary equity sectors. A carefully constructed, factor-aware basket in these sectors is well positioned to outperform in a fiscal-driven, uncertain environment. 

We discuss the implications of this morning’s CPI report and the relative attractiveness of 2/5 Treasury curve steepeners.

We will abandon our recession call if US economic data show clear signs of stabilization over the summer months. For now, that has not happened. Maintain a modest underweight to stocks but look to get more defensive if MacroQuant’s equity z-score falls below -1.

Our Portfolio Allocation Summary for July 2025.

We upgrade European small caps to maximum overweight and double down on our existing recommendation to go long European small caps relative to US ones.