Articles by Chun Wang, CFA, PRM Director of Multi-Asset Strategies

While stretched valuations in AI-related names were widely cited as the trigger for the mid-November stock market hiccup, a more convincing explanation lies in the plumbing of the financial system.

Monetary and fiscal policies continue to be supportive of risky assets—and the favorable seasonal window is upon us.

There is consistent evidence that bank stocks behave like macro proxies. Both domestically and in other major economies across the globe, there is a strong and steady link between lending conditions and subsequent economic activity.

As AI-growth heavyweights keep pushing the S&P 500 to new all-time highs, value investors have been completely left out. Usually, buying high-quality value names is the best defense, but that has been a disaster in the current cycle. Junky value is substantially outpacing quality value.

The latest CPI numbers were slightly softer than consensus. The Fed had to pause its easing cycle when the CPI returned to 3% in January this year. But not this time. Our Inflation Scorecard indicates a modest disinflationary reading.

With a supportive backdrop of a more accommodative Fed and expansive fiscal stance, markets have grown accustomed to spinning both good and bad news into a positive narrative. Within fixed income, we remain constructive toward higher-quality credit.

The stock rally and associated wealth effect make an imminent recession less likely (data that corroborates our Up/Down Earnings figures). Yet, things can change quickly when so much is riding on the market. Employment is still the biggest threat.

While the U.S. is the center of attention for global investors, Chinese stocks have quietly outperformed. At first glance, it might be tempting to give credit to the surge in Chinese Tech names. In reality, the upswing is much broader and began long before the Alibaba rally.

Inflation and bond yields, alike, remain well behaved, which is a positive for risky assets. Among fixed income, we are still constructive toward higher-quality credit.

An examination of how large- and small-cap companies allocate cash across three main uses: investment (Capex and R&D), shareholder returns (dividends and buybacks), and M&A. We further evaluate how, over time, the market rewards or penalizes each.

· The latest CPI numbers were in line with consensus. Our Inflation Scorecard maintained a modest disinflationary reading. There are signs that demand-pull indicators will add to inflationary pressure over the coming months.

With the general backdrop of an easing Fed and expansive fiscal stance, the economy should be doing okay.

Stablecoins are reshaping the financial landscape by combining the stability of the U.S. dollar with the speed and global reach of crypto technology. Backed by short-term Treasuries and used across DeFi, payments, and remittances, they’re becoming digital cash for the internet era. With new U.S. legislation unlocking growth, their impact on banking, global dollar dominance, and Treasury demand is just beginning.

The U.S. dollar has seen some interesting dynamics this year, so we’ve updated our U.S. Dollar Monitor. Currently, the model implies a higher likelihood of dollar strength, or at least a decent rebound over the next few months.

• The latest CPI numbers came in slightly below consensus again.
• Our Inflation Scorecard saw a few signal changes but maintained a modest disinflationary reading.
• The demand-pull side has started to show more inflationary pressure.

We turned constructive toward higher-quality credit.

On the whole, the probability of an imminent recession has declined since our last update in April and now stands below 50%. Only two signals changed in this update, the most significant being the S&P 500, which improved from yellow to green.

Economic resilience that prompted the Fed’s pause is consistent with past cases. Equities and bonds have largely followed historical patterns. The exceptions—gold’s outsized return and the dollar’s weakness—highlight the unique risks introduced by the current political environment.

The latest CPI report came in softer than consensus. The impact of tariffs is not there yet. Our Inflation Scorecard maintained a modest disinflationary reading (43) this month.

While the “Trump put” materialized in May, the markets are again becoming complacent toward both policy uncertainty and geopolitical risks.