Recession-Hard/Soft Landing
In this Special Report, GeoMacro Strategist Marko Papic argues that the Trump administration is flirting with high risk / low reward. Triggering a recession may be the end goal of the White House, but borrowing costs are not declining as much as they ought to be while President Trump’s political capital is on thin ice. Most recessions are caused by a “murder weapon.” It is rare that this weapon can be holstered. This may be one of those times.
The market reaction to this afternoon’s Fed meeting looks overdone. Investors could be in for a hawkish surprise when it becomes apparent that the Fed won’t ease policy into higher tariff-driven inflation prints.
Despite our bearish predisposition towards stocks, we are open-minded to anything that could challenge our thesis. As such, in this report, we review five upside scenarios for equities.
A falling stock market and sticky bond yields represent the worst of both worlds for investors. We interrogate why bond yields haven’t dropped more given the large selloff seen in equities.
This morning’s employment report showed solid job growth, but recent consumer spending indicators are more concerning. The risk of recession starting within the next few months has increased. We suggest some important indicators for investors to track in the current environment.
The US economy is set to enter a recession within the next few months. Stay underweight equities and overweight cash. Look to increase fixed-income duration exposure over the coming months. The euro is likely to strengthen and European stocks should outperform US stocks over the next month or so, but these trends will reverse by the middle of this year.
Our Portfolio Allocation Summary for January 2025.
While the US economy could remain upright on the tightrope for a while longer, it will inevitably fall, leading to a major bear market in stocks. We will be looking to our MacroQuant model for guidance on when to turn fully defensive. We are not there yet.