Equities

Heading into a black hole, you pass a point of no return known as the ‘event horizon’ after which your impending oblivion is sealed. US recessions also have an event horizon, which we are fast approaching. We reveal a leading indicator of this event horizon, and what it means for investment strategy.

It is not unusual for a period of rebounding share prices to occur between an inflation-driven selloff and a growth scare. Initially, stocks rally on falling inflation and prospects of lower interest rates. Then, worries about corporate profits intensify, and equity prices deflate along with falling Treasury yields. This is what happened in the US in 2000-2001 and is likely to occur in the coming months.

Global investors should sell Chinese assets on strength this year and diversify into other emerging markets. American investors should limit China exposure. Short CNY-USD.

Our latest edition of the Big Bank Beige Book suggests that households, businesses and banks are in unusually good shape ahead of a recession.

European assets have enjoyed a stunning outperformance since October 2022. Can these strong returns last in 2023?

Hopes of a soft landing for the US economy will intensify over the coming months, allowing equities to rally. However, even if an equilibrium of high employment and low inflation is reached, it will be difficult to keep the economy there. Investors should remain tactically bullish on stocks but look to turn defensive in the second half of 2023.