Sahm rules are meant to be broken

We think the Fed’s rate cut validates a risk-on tilt amid decent growth and decelerating inflation. That said, we opted for a moderate rather than full overweight view on global equities given that markets anticipated the Fed’s move, growth is slower, and geopolitical risks loom.
We continue to expect the equity rally to broaden beyond the mega-cap tech names, helped along by the Fed’s “commitment” to preserving growth. We prefer Japanese equities over Europe and China. We have turned neutral on the US.
Defensive fixed income priced in the Fed’s rate cut well in advance. Thus, we have moved to a neutral view on duration from a moderately overweight view. We continue to like high yield now that peak defaults appear to be behind us, demand for income is still strong, and net supply is minimal.
We think gold’s meteoric rise could continue amid lower US real rates, continued central bank and retail buying, and geopolitical risk. We also see upside for oil with recession risks waning and prices at the low end of the recent range.
Downside risks to our views include US election-related volatility, broader turmoil in the Middle East, and a spike in inflation that would dim hopes of Fed easing. Upside risks include a strong upward turn in the global cycle and a weaker dollar. Meaningful fiscal stimulus from China could also translate to upside risk for emerging markets.