Economic Theory

In this Strategy Outlook, we present the major investment themes and views we see playing out for the rest of 2023 and beyond.

A benign disinflation will support equities over the next few quarters. Stocks will fall next year as a recession begins when investors least expect it.

Once the debt ceiling soap opera ends, investors will likely turn their attention to some of the tailwinds supporting stocks. These include stronger earnings growth, diminished bank stresses, better housing data, early signs of an upleg in the manufacturing cycle, the prospects of an AI-driven productivity boom, and the fact that labor slack has managed to increase without rising unemployment. Investors should resist turning bearish on stocks for now but look to become more defensive later this year.

The debt ceiling game’s endpoint will avoid default only if it implies economic pain. For the Republicans, the best strategy is not to lift the debt ceiling unless the Democrats cut spending a lot, or unless the economy starts to tank. Plus: there are signs that the mania in ‘AI’ stocks has gone too far too fast.

In this *Special Report*, we analyze the dollar’s reserve status within the context of geopolitical crosscurrents. In our view, there is more than meets the eye when betting on the end of the dollar’s reserve status.