The macroeconomic cycle continues to show expansion, with material nominal GDP growth. With further market-regime confirmation of these conditions, the backdrop continues to materially favor equities and commodities over fixed income.
We work through a small selection of the range of systematic inputs from Prometheus Institutional that drive these conclusions.
The latest data have shown more signs of cyclical strength in the economy. Industrial production conditions continue to show improving breadth and stable growth rates:
We see this mirrored in ISM data, which continues to imply positive conditions for industrial equipment investment:
We see this cyclical strength mirrored in our latest estimates for real retail sales as well:
These dynamics continue to suggest strong demand conditions in the economy. For balance, however, it is important to note that growth is not evenly distributed through the economy. Housing continues to struggle as it has for many quarters now:
But a weakness in housing remains readily offset by technology-related spending in the economy:
These strong cyclical conditions continue to manifest as elevated nominal GDP readings. We show our daily estimates for the same below:
While this fundamental backdrop has existed for some time, we think it is important to note that our macro market regime probabilities are now aligning with these conditions.
Our Macro Regime Probabilities use our bottom-up signals across asset markets to construct forward-looking estimates for the cross-asset macro market regime. These signals incorporate both fundamental and price-based information to produce high-frequency, forward-looking estimates for the US cross-asset environment. These signals are best used as a forward-looking guide for the cross-sectional returns across macroeconomic assets. We define the regimes as follows:
(+) G (-) I: Rising Growth & Falling Inflation, Equities Outperform
(+) G (+) I: Rising Growth & Rising Inflation, Commodities Outperform
(-) G (-) I: Falling Growth & Falling Inflation, Treasuries Outperform
(-) G (+) I: Falling Growth & Rising Inflation, TIPs Outperform
Our Macro Regime Probabilities have moved towards a dominance of nominal growth outcomes. This regime distribution, if sustained, suggests a material weight on
