Equities

Illegal immigration into the US has skyrocketed to record levels. Correctly accounting for this, US real consumption growth on a per head basis is already fragile. Meanwhile, the real bond yield is only now approaching the pain point that typically triggers a recession. Ahead of the upcoming US jobs report, we point out what it would take for the Joshi rule real-time US recession indicator to breach its event horizon. And how to position in stocks and bonds, both tactically and cyclically. Plus: potential turning points in Biotech and Genome, ADBE, and Taiwan versus China.

Global instability will continue in 2024 – whatever happens afterward. Slowing economies will exacerbate already high geopolitical risk and policy uncertainty stemming from the US election and foreign challenges to US leadership. Overweight government bonds, defensive sectors, the Americas versus other regions, aerospace/defense stocks, and cyber-security stocks.

We expect the US economy to slow and potentially downshift into a recession sometime in 2024, as tighter monetary policy weighs on consumers and businesses. In addition, (geo)political tensions may increase market volatility. The risk/return for US equities is unfavorable. We recommend that our clients reduce portfolio beta and increase allocations to defensives and quality growth.

We enter 2024 as we were across the last four months of 2023, tactically equal weight across the board until the S&P 500 rally is complete and we gain a better entry point for underweighting equities and overweighting fixed income.