Latest from BCA Research

Special Report

The next six-to-nine months hold a crucial test of whether the equity market will ratify the soft landing and the Biden administration or not. If so, then markets will rally on policy continuity and likely gridlock. If not, then markets will struggle until the election is over and again in 2025-26.

Special Report

Commentators often use notions like debt deflation, balance sheet recession, and liquidity trap interchangeably. Yet, these are different concepts. This report develops a framework and provides a diagnosis of China’s economic malaise. A follow-up report will deal with what kind of treatment is needed for a recovery. As a trade, we recommend shorting the EM equity index.

In this special report, we discuss whether the economic conditions necessary for a stronger yen (and higher JGB yields) will materialize over the next 12-to-18 months.

We continue to expect China to deploy stronger fiscal and monetary stimulus to avoid prolonged deflation brought about by a liquidity trap and sub-zero growth. All the same, a lower-growth risk has been added to our ensemble forecast. We expect Brent to trade at $94/bbl in 2H23, and $120/bbl next year. WTI will trade $4 – $6/bbl lower.

High-Yield municipal bonds have performed well in recent years, but valuations are now stretched. We recommend an underweight allocation, though we prefer high-yield munis over high-yield corporate bonds.

European real GDP growth is stabilizing, so why would European equities continue to trade sideways for the remainder of the year? The answer lies with nominal growth and its impact on earnings.

Outperformance of Growth sectors most likely has run its course. It is time to shift Growth vs. Value allocation to neutral, downgrade Semis, and upgrade Energy to overweight.

Inspired by a client’s questions, we examine the rationale behind the implementation of the trailing stop governing our near-term asset allocation recommendations.

Special Report

Investors should think probabilistically about the economy and financial markets. In the face of non-linear effects, the range of possible outcomes can be very large. A systematic application of Bayes’ rule can help improve decision-making.

Numerous divergences have opened up between global risk assets and global business cycle variables. These gaps are unsustainable, and odds are that the recoupling will occur to the downside with risk assets selling off.