Ian Harnett in Bloomberg: 'How to invest $10,000 right now'

The idea: 

Despite optimism about US rates being on hold and inflation coming down, there are more signs of a downturn emerging. This keeps us favoring defensive assets. 

The strategy: 

With the Federal Reserve on hold, two-year US Treasuries yielding close to 5% provide good returns. In the equity market, alternative energy stocks have been out of favor, but the energy transition is not going away, and lower bond yields should help boost alternative energy. As well, quality industrials are relatively cheap and should gain as governments and corporates are set to spend more on things like defense, the rebuilding of Ukraine, and all the physical infrastructure needed to facilitate the move to a net zero world.

The big picture: 

Four things on the economic front have caught our attention: Data showing the US labor market easing, rising US defaults and bankruptcies, weaker US housing and lower equity prices. Together, these point to a gentle easing of economic activity heading into 2024.

Although the credit market seems to be discounting a soft landing, bankruptcies are trending higher in the US and around the world, and US defaults rates are also rising. Housing was a source of optimism in the first half, but recent pending home sales, new home starts, and mortgage applications data all suggest rising mortgage rates are beginning to negatively impact housing again.

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• ASR clients can read Ian’s recent work on: Powell’s Reality Check Punctures Bull-Market Optimism 

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