Cyclical Asset Allocation: Leading indicators show “risk-on” tailwinds, as US growth scare fades

Our Macro Risk Indicator remains in “risk-on” territory, indicating that the 6-month forward outlook for risk assets is good.

This risk-on shift is being driven by an improving liquidity outlook, synchronized global central bank easing, and a broadening out of growth leading indicators.

Last month, we had been reluctant to fully embrace the risk-on message from our models due to signs of tariffs leading to a US growth scare in 3Q25.

Today, the US growth scare is fading. For example, retail sales have returned to growth after 2 consecutive negative months in April and May.

Our US recession model probability has also fallen dramatically since May, down to 26%. While the US labor market has clearly slowed, the lack of a sustained rise in layoffs or jobless claims means recession risk remains low.