Labor Market

Our annual end-of-summer chartbook report traces the labor market deterioration that led us to downgrade equities at the beginning of August. It also highlights the soft-landing expectations that the credit and equity markets are discounting. We like the risk-reward profile of our newly defensive stance.

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.

MacroQuant continues to recommend underweighting equities and overweighting bonds. This is consistent with the Global Investment Strategy Team's decision to downgrade global equities to underweight in late June.

Our negative stance on European growth and assets is not devoid of risks. To gauge whether these risks warrant upgrading our growth outlook, we monitor Sweden closely. So, what is the current message from this Nordic economy?

The great US labor market shortage is over. Labor demand will likely fall short of supply by the end of this year, causing unemployment to soar. Neither fiscal nor monetary policy will be able to prevent the coming recession. Investors should underweight stocks and overweight Treasuries.