Labor Market
US GDP growth appears to have accelerated even as employment growth has faltered. We will make a final decision in early October when we publish our next Strategy Outlook, but most likely, we will cut our 12-month US recession probability to 40%-to-50% from 60% and turn tactically neutral on stocks, while still retaining a modest equity underweight over a 12-month horizon.
Median Fed unemployment rate projections are overly optimistic. The Fed will end up cutting more in 2026 than it currently anticipates.
While it is impossible to know exactly when global equities will peak, there are now enough vulnerabilities to justify keeping one’s finger near the eject button.
High US inflation is being driven by tariffs, not domestic inflationary pressure. This argues for Fed easing and a bull-steepening of the Treasury curve.