Recession-Hard/Soft Landing

Democrats remain favored for reelection in 2024, which implies gridlock and policy status quo in 2025. That is not negative for stocks in the near term. However, economic, political, and geopolitical risks will escalate from here, causing volatility.

Households have ramped up their cash holdings since the end of 2019, but the absence of an empirical link between cash and consumption leads us to believe that we’ve modestly overestimated the risk of consumer-driven overheating.

Recessions often begin seemingly out of the blue when the economy’s temperature falls enough to set in motion adverse feedback loops that cause unemployment to rise. We expect the US economy to suddenly freeze over towards the end of this year or in early 2025. For now, a benchmark allocation to equities is appropriate, but a more defensive stance will be necessary later this year.