Economy

The US economy is not in recession, but is suffering from a post-pandemic stimulus hangover. The cure: lower interest rates. We expect the Fed to start lowering rates, which will benefit both equities and bonds. We upgrade stocks to neutral and downgrade cash to underweight. We also upgrade duration to overweight. The US dollar will continue to weaken, so favour Europe and China within equities.

The Treasury/OIS spread has exerted notable upward pressure on Treasury yields during the past year, but the factors driving the spread are now turning more favorable.

Investors should modestly underweight equities in their portfolios and look to turn more aggressively defensive once the whites of the recession’s eyes are visible. We think that will happen within the next few months.

In Section I, Doug underscores that the full weight of tariffs has yet to be felt on the US and global economies, against the dangerous backdrop of a softening labor market. In Section II, Jonathan presents the bullish case for the US dollar over the coming year.

In Section II, Jonathan presents the bullish case for the US dollar over the coming year.