Latest from BCA Research

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.

At the asset class level, the GAA Quant model is overweight equities, underweight bonds, and neutral cash.

We are not yet ready to downgrade equities on a tactical basis but continue to expect we will eventually do so. We present a checklist of indicators that we are watching to determine when to de-risk.

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.

Special Report

Italy is no longer Europe’s problem child. Investors will be better off reassessing their views of Italian assets, which represent a buying opportunity on a structural time horizon.

In this Insight, we discuss our rationale for a short sterling position.

MacroQuant downgraded equities from overweight to neutral on a 1-to-3 month horizon. The model maintains a neg­ative view on stocks over a 12-month horizon.

Bank Credit Analyst

Bank Credit Analyst

In Section I, we acknowledge that investors may wish to be neutrally positioned toward risky assets even over a 6-12 month time horizon. Our confidence in an eventual recessionary outcome has not changed, but a recession may be delayed by a Fed-driven easing in financial conditions. We are not prepared to change our investment recommendations today, but strong evidence of sustained growth and continued disinflation could lead us to recommend increasing exposure to risky assets for the sake of portfolio risk management. In Section II, we ask whether growth stocks will outperform value stocks during the next US recession. We examine historical performance of style during recessions dating back to 1926, and conclude that growth stocks are likely to underperform value during the next US recession. That assessment will change if growth stocks sell off significantly in advance of a contraction in output, or we see signs of significant sector-specific effects impacting value indexes.

Investors around Europe and North America are concerned that the stock market is increasingly overbought and vulnerable to exogenous risks. We agree and have good reasons to fear that festering geopolitical risks and the US election season will deal negative surprises.