Asset Allocation
This year’s rise in commodity prices represents a blow-off rally rather than the start of a durable bull market. The global economy is heading for a recession. Stocks, commodities, and other risk assets are vulnerable.
In this note, we preview the Q1-2024 earnings season, give our take on expectations and share what we will be watching.
In this report, we present our quarterly review of our Model Bond Portfolio. The anti-growth bias of the portfolio allocations hurt the portfolio performance in Q1/2024 as global growth surprised to the upside. However, we anticipate some recovery of the underperformance in our base case scenario for the next six months.
Contrary to conventional wisdom, most leading indicators suggest that the US labor market is weakening, including our very own “Mel rule.” After being overweight stocks last year, we moved to neutral at the start of 2024, and are now putting equities on downgrade watch with the expectation of shifting them to underweight later this year.
Fears of a hard landing are abating as growth has been surprising to the upside. New worries are emerging, such as the trajectory of disinflation, and the pace and timing of rate cuts. In this environment, it is important to build a resilient all-weather portfolio, which protects against a correction, rising rates, or stubborn inflation but also has exposure to the AI theme.
Europe credit flows are stabilizing, hence a major drag on the region’s growth will dissipate. What does this development imply for European equities?
The equity rally extended into March as hard landing outcome was priced out. It has broadened, as money flowed into less over-loved pockets of the market. Our models signal that margins are about to stabilize, and earnings growth will accelerate as the year progresses. However, companies are raising prices again and the no-landing outcome and fewer than three rate cuts this year are increasingly likely.
The global economy is wobbling precariously between slowing growth and reaccelerating inflation. This is unlikely to end well. Stay cautious, and hedge against both recession and inflation.