Domestic Politics

Stay defensive until recession risks are verifiably dispelled. Favor government bonds over stocks.

Stocks will only get temporary relief from gridlock. Inflation will abate but then remain sticky. US and global policy uncertainty and geopolitical risk will remain historically high.

Stay short Greater China assets. Stay long Japanese yen. Hold back on Brazil for now but look forward to opportunities in future.

The midterm election will bring some relief from US policy uncertainty. But this relief will be short-lived unless Republicans win the Senate, which is still too close to call. Global policy uncertainty and geopolitical risk will remain high.

Favor US and Southeast Asian stocks over global stocks. Stay underweight China, Hong Kong, and Taiwan.

Stay defensive at least until the US midterm election is over. Gridlock is disinflationary in 2023 and hence marginally positive for US equities. But any relief rally will be short-lived as recession risks are very high.

Investors should overweight US defense stocks in a world where US war-weariness is declining and the Biden administration is likely to exhibit an increasingly hawkish foreign policy.

Russia’s conflict with the West will escalate and trigger more bad news for risky assets this fall. Beyond that, stalemate looms. Latin American equities present a potential opportunity once the macro and geopolitical backdrop improve.

Investors should go long US treasuries and stay overweight defensive versus cyclical sectors, large caps versus small caps, and aerospace/defense stocks. Regionally we favor the US, India, Southeast Asia, and Latin America, while disfavoring China, Taiwan, Hong Kong, eastern Europe, and the Middle East.