Consumer
Higher oil prices threaten the global economy, warranting an underweight stance on equities. Over the long haul, industrial metals will fare better than crude.
Job creation remains stalled, but consumers are carrying on and S&P 500 earnings have been growing by double digits. Although the repercussions from the war in the Middle East are not yet clear, the US economy was doing just fine before it began.
The gap between PCE and CPI inflation will narrow within the next few months, mostly driven by core PCE inflation converging toward its trimmed mean.
In Section I, Doug recommends cutting US equity exposure in favor of Europe as reduced recession odds make it unlikely that the US will draw safe-haven capital flows. In Section II, Jesse ranks middle economic powers across hard and soft power dimensions and recommends investing in their defense and industrial sectors.
In Section II, Jesse ranks middle economic powers across hard and soft power dimensions and recommends investing in their defense and industrial sectors.
The annual benchmark payrolls revisions revealed that the labor market has been weaker for longer than initially reported. The probability that a crack in consumption is just around the corner is much reduced and we have therefore dialed back our recession expectations. Though our asset allocation recommendations remain neutral across the board, we are more optimistic than we were at the beginning of the year.
Core inflation will get close to the Fed’s 2% target by the end of this year.
It appears that households have been able to spend more than they’ve earned since May by dipping into their swollen brokerage accounts. Bulked-up equity holdings could herald a future where consumption is more sensitive to stock market ups and downs. That’s great in bull markets but could be an unexpected drag on activity when the next bear arrives.
In Section II, Jonathan examines whether the AI “scaling laws” are likely to hold. They will over the near term, but cracks are already beginning to form in the narrative of ever-improving AI.
In Section I, Doug highlights the risks to US consumption if job growth does not soon recover. The US economy has yet to pass its tipping point, however, arguing against defensive positioning for now. In Section II, Jonathan examines whether the AI “scaling laws” are likely to hold. They will over the near term, but cracks are already beginning to form in the narrative of ever-improving AI.