CoreMacro

Clients have been pushing back on our recession call on the grounds that it is incompatible with the economy’s second-half acceleration and the more recent easing in financial conditions. We examine both of those points in the course of doing some pushing back of our own.

Recessions often begin seemingly out of the blue when the economy’s temperature falls enough to set in motion adverse feedback loops that cause unemployment to rise. We expect the US economy to suddenly freeze over towards the end of this year or in early 2025. For now, a benchmark allocation to equities is appropriate, but a more defensive stance will be necessary later this year.

Easier financial conditions, rising home prices, rebounding consumer sentiment, and a stabilization in manufacturing activity all augur well for near-term US growth prospects. An unsustainably low savings rate is a key risk to the US economic outlook. Our revised forecast is centered on a recession starting in late 2024 or early 2025.

Investors have taken comfort in the fact that unemployment has remained low in the major economies. But underneath the surface, there are clear signs that labor demand is weakening. The clock keeps ticking towards our H2 2024 recession call. After being bullish on risk assets last year, we are slowly turning more defensive.

Special Report

The expectation that China is best placed to win the global EV race presumes the persistence of the status quo. Reality, however, may differ as the sector looks set to be hit by a range of changes. If nonlinearity were to emerge in the global auto sector, as it often does, then the EV transition could end up spawning a very unexpected list of winners and losers.

A soft landing can be achieved but not maintained. We are cutting our tactical recommendation on stocks from overweight to neutral and scaling back our long-duration stance.

Special Report

Our recommendations for blogs and X’s (on the economy, financial markets, asset allocation, bonds, quants, energy, real estate, geopolitics, and specific countries and regions) to try over the holidays.

Global Investment Strategy predicted the surge of inflation in 2021/22 and the immaculate disinflation of 2023. Now their unique framework is predicting a recession in the second half of 2024.

Our kinked Phillips curve framework predicted the immaculate disinflation of 2023. That same framework is now warning that the global economy is heading towards a recession in the second half of 2024.

Labor markets are softening in most developed economies, as is usually the case in the lead-up to recessions. Our base case is that the global recession will begin in the second half of 2024, but we will be monitoring our MacroQuant model on a daily basis for confirmation.