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US Macro Regimes - August 2023 Positioning

The US market is uncertain about potential new paradigms that may emerge in the future as inflation decreases. As long as inflation continues to decrease, the focus remains on growth. The major questions on everyone's minds are:


Q1. Are we overgrowing and bidding inventories that will not be needed once the stimulus-dependent demand dries up?

Q2. Was the liquidity drawdown enough to reduce inflationary demand?


If you know the answer to question 1, you can evaluate the probability of the following three scenarios:

  • Late-stage cycle

  • Recession

  • Post-recession recovery

If you know the answer to question 2, you can evaluate whether inflation could accelerate and assess the risk of further liquidity drawdown. This will help you assign probabilities to the following two scenarios:

  • Early-stage cycle

  • Liquidity maelstrom

Before coming up with my own probabilities, let's assess what the market is pricing:

US 12M Pricing Probability (Based on Proprietary Model)

US 6M Pricing Probability (Based on Proprietary Model)

US 1M Pricing Probability (Based on Proprietary Model)

Late stage cycles are reasonably priced on 12, 6, and 3-month bases. Recession is priced moderately. Recently, early stage cycles and melt-up regimes have performed well. My contrarian view would be to assign the following probabilities:

  • Recovery: 30%

  • Early stage cycle: 30%

  • Recession: 20%

  • Low liquidity: 20%

Thank you for reading.


Source: Refinitiv & Author’s Calculations

Important Disclosure This information is current only as of the printing date and provides and views as of the date of writing. We have no obligation to update this information. Actual performance may differ from what is shown here and the views expressed are subject to change without notice. We may have a significant financial interest in the positions and securities discussed.

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