In 2022, the Federal Reserve began what would become the fastest set of rate hikes since the 1980s as it tackled a US economy with strong growth and inflation at four-decade highs.
I likened the situation to a spaceship returning from orbit and laid out two potential paths. The more favorable “soft landing” path would see inflation fall rapidly, while growth dipped moderately below trend. The more challenging “hard landing” would see inflation stay elevated, while growth slowed sharply, risking recession.
The debate over whether the Fed could engineer a soft landing or trigger a recession has preoccupied investors ever since. But recent data means we are taking a hard look at an alternative “no landing” scenario, in which inflation is close to the Fed’s target, but growth remains at or above previous trend estimates.
In this letter, we review the latest US data on inflation, the labor market, and the recent revisions to the GDP print and what these imply. The bottom line is that the improved macro outlook increases our degree of certainty about our positive view of equities. With the US presidential election imminent, I look at the risks that it could pose to this view. And we also look at China, as it embarks on large-scale stimulus to address its challenges.
On the back of this more positive outlook, we have upgraded US equities to Attractive from Neutral and have raised our June 2025 S&P 500 target to 6,300 and introduced a target of 6,600 for December 2025. We also upgrade global equities (MSCI All Country World Index) to Attractive from Neutral. In fixed income, we retain an attractive view of investment grade bonds. We also view gold as Attractive and the US dollar as Unattractive.
