Elections

The monetary policy sweet spot won't end for equities until interest rates climb above the equilibrium rate - that won't happen even with a rate hike in December. But even though equity markets will continue to cheer a go-slow Fed in the short run, the sustainability of these gains will be dubious until a healthier environment for earnings takes hold.

At last year's BCA New York Investment Conference, I made five controversial predictions. This week's <i>Special Report</i> looks at how they have panned out.

The median voter moving to the left has spurred paradigm shifts. These new regimes are giving way to transformational leaders who seek change by breaking convention. As they test their constraints and pursue their preferences, a cautious stance towards risk assets is warranted. In this Monthly Report, BCA's Geopolitical Strategy discusses Trump's recent comeback, rising EM political risk, and Italy's upcoming constitutional referendum.

Hong Kong's growing political awareness and rising sensitivity to public policy underscores brewing social tensions brought about by decades of <i>Laissez-Faire</i> capitalism. Social policies will likely become progressively more redistributive, with potentially a longer-term negative impact on asset prices.

The post-Brexit rebound has pushed stocks into overbought territory. U.S. equities, in particular, look increasingly priced for perfection. Higher U.S. rate expectations will push up the dollar, further curbing S&P 500 profit growth. Share buyback activity and dividend growth are slowing, while U.S. election risks are likely to rise. Go short the NASDAQ 100 futures as a tactical hedge.

The lack of inflation makes a Fed rate hike before December unlikely. In the interim, the continued flow of liquidity could sustain the high-risk rally.

The recent rally in risk assets is walking a very fine line. If the Fed turns more hawkish, or U.S. growth slows, it could fall over.

A spike in economic uncertainty explains the recent move lower in Treasury yields. Given the resilience of global growth, we expect yields to rise as uncertainty ebbs in the coming months.

We test three channels of contagion from the Brexit shock: political, banking system, and economic.

The only certainty regarding the next steps in the Brexit Saga is uncertainty. In the attached report, BCA's Geopolitical Strategy presents the BREXIT Decision Tree and reviews the possible next steps. We also collate all of the BCA investment views and strategies - tactical and strategic - that relate to the ongoing saga.