Labor Market

We still believe a recession looms, but it has yet to rear its ugly head. We continue to recommend investors position defensively, but we will change tack if clear signs of a recession don’t emerge soon.

We will abandon our recession call if US economic data show clear signs of stabilization over the summer months. For now, that has not happened. Maintain a modest underweight to stocks but look to get more defensive if MacroQuant’s equity z-score falls below -1.

Upward pressure on Japan’s real bond yield justifies overweighting the yen and underweighting overvalued tech. Plus: two new tactical trades are long JPY/EUR and short platinum.

June’s employment report showed a tick down in the unemployment rate, an improvement that rules out a Fed rate cut later this month.

Acute geopolitical risks, like a massive oil shock, may be abating. But structural geopolitical risk remains high and could upset a blithe market. Cyclical economic risks are underrated as the US slows down and China continues to stumble. Investors should book some profits in anticipation of tariff implementation and a downturn in hard economic data.

Investors should modestly underweight equities in their portfolios and look to turn more aggressively defensive once the whites of the recession’s eyes are visible. We think that will happen within the next few months.

In Section II, Jonathan presents the bullish case for the US dollar over the coming year.