Latest from BCA Research
Falling core inflation in the US over the short run will boost real disposable household income, which will keep consumption – ~ 70% of US GDP – strong. Over the medium- to-longer term – 3 to 5 years out – inflation risks rise as fiscal dominance becomes the Fed’s modus operandi, and economic fragmentation becomes entrenched. War and the expansion of war remains an inflation risk. In this environment, gold remains our preferred hedge.
Meager credit growth and shrinking real wages will keep Thai inflation very low in the coming months. The currency will get support from an improving current account surplus. Fixed-income investors should upgrade Thailand from neutral to overweight within EM domestic bond portfolios.
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.
In this update we break down Q3 2023 earnings. We found positive surprises from mega caps masked a relatively normal earnings season. Both USHQ portfolios moderately underperformed their benchmarks as market optimism for a soft landing hurt the low volatility, high quality tilt of the BCA Score.
This month the BCA Sector Score upgraded Consumer Staples and Communication Services. In response, Energy finally fell out of the top spot. Also, the BCA Style Score continues to favor large cap growth. To give context to the global style tilts, we break down the factor long/short performance by region and suggest some screens.
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.
