We haven’t made significant changes to our portfolio in recent days due to a lack of conviction in the current market price action. However, we are not blind to the risks currently present in the US economic cycle. 

The job market is normalizing linearly, but the risk is that it normalizes linearly until it weakens exponentially. Many of the current patterns in US macroeconomic key figures resemble slowdowns seen in 1990 and 2007, to take two relatively recent examples. On the contrary, there are also signs of procyclical developments, which is unusual in a slowdown, to say the least.

We are not inherently opposed to the idea that the FOMC might conduct a few insurance cuts, but the point is that everyone already expects this. A few cuts are already priced in for this year, and another 3.5 cuts are priced in for 2025.

The market is very well aware that the US economy is currently showing weaker trends than its peers.

Chart 1: The market is already pricing in a very dovish Fed scenario for 2025