Government

The US election underscores three long-term trends of Generational Change, Peak Polarization, and Limited Big Government. Investors should expect more volatility around the election and should assess the results before adding more risk. While we predicted the October surprise from the Middle East, more surprises are coming before the final vote is cast.

This report looks at the likely path for the dollar and bond yields over the next 6-to-12 months.

The market got excited by the 50 bps Fed cut and China stimulus. But these are a recognition that economies are slowing significantly. Stocks often rally after the first Fed cut, before falling sharply. Investors should stay defensive.

After resisting the consensus narrative in 2022 that a US recession was imminent, and then predicting an immaculate disinflation for 2023, the Global Investment Strategy team has joined the dark side and is now expecting a recession to start in the US within the next six months. Accordingly, we recommend that investors underweight stocks and overweight government bonds.

This insight parses through the RBA’s latest policy decision, and makes recommendations on whether to expect any rate cuts in 2024, and beyond.

The Draghi report highlights sensible reforms that would address many of Europe’s productivity shortcomings. Whether European capitals heed Mario Draghi’s advices remains to be seen.

Even after the Fed cuts rates, policy will remain restrictive for some time. Moreover, in history, stocks have tended to fall around the first rate cut. We remain cautious on the outlook for the economy and risk assets.