Equities

In Section I, we argue that global investors have been lulled into a false sense of security concerning the resiliency of the US economy. Tight monetary policy means that something must change for a recession to be avoided, and developed market rates cuts will likely be too modest and come too late to save the day. Nimble investors or those highly sensitive to tracking error should not be underweight stocks over the coming 3-6 months. Over a 6-12 month time horizon, we continue to recommend that investors remain underweight global equities versus US$-hedged long-maturity developed market government bonds. Section II is a guest report written by Martin Barnes, BCA’s former Chief Economist. Martin revisits the idea of the Debt Supercycle and discusses how its true end may emerge in response to a fiscal crisis in the US over the coming few years.

We recommend overweight in Pharma over a tactical and strategic investment horizon, as challenges, that have recently hampered the industry group’s performance, are dissipating. Likely election outcomes are positive for the industry, while major trends like generative AI applied to drug development and an aging population are long-term tailwinds.

Looking at economic activity, global monetary policy seems restrictive, however, the behavior of financial markets tells a different story. What gives?

The signs of an approaching recession are starting to emerge. We will turn tactically defensive once they all fall into place.

China is trying to export its way out of its economic slowdown while the US has already formed a hawkish consensus on foreign policy and trade. Investors should take cover as global financial markets are underrating the new phase of the trade war, which will escalate from here.