Copper

MacroQuant continues to recommend underweighting equities and overweighting bonds. This is consistent with the Global Investment Strategy Team's decision to downgrade global equities to underweight in late June.

The great US labor market shortage is over. Labor demand will likely fall short of supply by the end of this year, causing unemployment to soar. Neither fiscal nor monetary policy will be able to prevent the coming recession. Investors should underweight stocks and overweight Treasuries.

Investors hope that the ECB rate cuts priced into the curve will be sufficient to achieve a soft landing in Europe. History argues against this view, but will this time be different?

The green energy transition will drive a surge in copper demand over a long-term horizon. However, a better entry point to get long will emerge after the next economic downturn begins.

The consensus soft-landing narrative is wrong. The US will fall into a recession in late 2024 or early 2025. We were tactically bullish on stocks most of last year, turned neutral earlier this year, and are going underweight today. We conservatively expect the S&P 500 to drop to 3750 during the coming recession.

The US economy is in the “Overheating” phase, so stronger growth brings higher inflation. Tight monetary policy means recession is still likely over the next 12 months. Stay defensive.