Macro tailwinds persist + what to use as early warning indicators - Oct. Macro Snapshot

Our leading indicators for growth, liquidity, and policy remain supportive of the 6-month forward outlook for risk assets. The incremental positive since last month is that our Eurozone and China growth leading indicators have risen further.

While the macro backdrop remains good, many asset classes have low embedded risk premia and high valuations relative to history. We flag two early warning signs to indicate when high valuation assets are vulnerable: A) the VP Correction Signal and B) any signs of bear steepening, especially in response to further Fed cuts.

Our N. American semiconductor capital cycle score remains healthy and better than tech hardware and software. Scores are also much better than European/Asian semis.

• Cyclical Asset Allocation: “Risk-on” tailwinds persist, potential for equity rally to broaden out
• Fed Easing Cycle: Tracking “no recession” Fed easing cycles so far
• US Inflation: Inflation remains above target, but leading indicators are rolling over
• Early Warning Signs: Keep calm, watch VP Correction Signal / bear steepening for warning signs
• Capital Cycle: Semis still capital scarce vs tech hardware/software, US better than Europe/Asia
• Equity: Earnings optimism elevated, macro tailwinds for EM, small caps
• Fixed Income: Yields trading near low end of fair value range, moderately biased upwards
• FX: Cyclical FX Edge model still points to USD rebound
• Commodities: Commodity outlook improving, energy and metals cheap in gold terms