Economy

In Section I, we respond to the ongoing challenge to our view that the US economy is on a recessionary path. The available evidence overwhelmingly supports the notion that US monetary policy is tight, which argues against the “no landing” economic scenario. It also underscores that the recessionary clock is indeed ticking unless the monetary policy stance eases soon. The “soft landing” narrative remains improbable and may have been unduly boosted by artificially low inflation readings over the summer. Until concrete signs of the meaningful rate cuts emerge, we will continue to recommend that investors maintain defensive portfolio positions. In Section II, we review the “modern-day” Phillips Curve, and explain why it is unlikely that the Fed will see a sustainable return to its 2% target without a rise in the unemployment rate above NAIRU.

Stocks should continue to rally in the near term, but investors should prepare to turn more defensive towards the end of the year in advance of a recession in 2024.

We comment on Jay Powell’s Jackson Hole speech and recommend shifting to a barbelled allocation along the Treasury curve.

Contrary to the widespread belief in the investment community, the global copper supply-demand balance is no longer in deficit. Red metal prices are set to decline by another 10-15% as the global copper market will shift to a larger surplus in the next six months.

The stock market’s pre-eminent growth sector is not US tech, it is French luxuries. No other sector can compare with French luxuries’ massive and sustained pricing power. The risk for French luxuries is not a China slowdown, the risk is that the structural increase in super-wealth comes to an end. If anything though, the coming disruption from generative AI will boost super-wealth. Ironically therefore, the best investment play on generative AI might be French luxuries.