Financial Markets
The Goldilocks environment for US profit margins should start to sour next year. Contrary to conventional wisdom, AI could end up eroding margins for both producers and consumers of artificial intelligence.
MacroQuant recommends underweighting equities and adopting a benchmark duration stance in fixed-income portfolios. The model is very positive on the US dollar, bearish on gold, neutral on copper, and bullish on oil.
The equity bull market is getting long in the tooth. Bonds should perform well once economic growth begins to slow. The dollar will strengthen over the coming months before resuming its downtrend. While crude has likely found a near-term floor, we favor metals over energy in the long run.
South Africa’s ambitious reform agenda will take time to bear fruit. Meanwhile, the country faces a stagflationary squeeze as inflation rises while growth slows. South African stocks, bonds, and currency are all vulnerable.
On Friday, the MacroQuant equity z-score fell to -1.01, below the critical -1 threshold that often coincided with bear markets in the past. With that in mind, today, I am downgrading stocks to a slight underweight on both a 3-month and a 12-month horizon.
