Theme 1 · Growth Is Slowing, Not Breaking
High-frequency data across the major economies continue to paint a picture of slower but still positive growth. Manufacturing surveys remain under pressure, but services indicators are holding up and labor markets, while softer at the margin, have not yet rolled over in a material way.
For markets, this “slow but not broken” backdrop has two important implications: earnings expectations face a ceiling rather than a cliff, and the debate shifts from “when does recession hit?” to “how low does growth need to go before policy makers blink?”
Theme 2 · Inflation Progress Is Uneven
Headline inflation has clearly rolled over, helped by base effects and softer goods prices, but the more persistent components — particularly services inflation tied to wages and shelter — remain above target. That leaves central banks uncomfortable declaring victory, even as political and market pressure to ease increases.
The key watchpoint over the next several months is whether “core services ex- shelter” can continue to grind lower without a sharp deterioration in the labor market. If it can, the path to a soft landing stays open. If it stalls, the conversation quickly shifts back toward renewed tightening risk.
Theme 3 · Policy Makers Want Optionality
Messaging from the Fed and other major central banks has converged on the same idea: policy is restrictive, the bar for further hikes is high, and decisions will be data-dependent. In practice, this means the hurdle for rate cuts is also high. Officials want to avoid loosening financial conditions prematurely and re-accelerating inflation before it is fully under control.
Markets, meanwhile, are increasingly willing to price cuts on a 6- to 12-month horizon. That tension between “central banks not ready to promise easing” and “markets eager to lean into cuts” is likely to be a recurring source of volatility into year-end.
Positioning · Still Under-Owned Equities, Over-Owned Cash
Asset allocation surveys continue to show elevated cash balances and only cautious exposure to risk assets. Many investors de-risked aggressively during the earlier inflation and policy scare and have been slow to re-engage, preferring to clip a yield in short-dated instruments rather than chase performance in equities or credit.
That backdrop is supportive of risk assets as long as the data avoid a sharp downside surprise: each incremental sign that inflation is cooling and growth is stabilizing pulls sidelined capital back into the market. At the same time, it creates vulnerability to any shock that clearly breaks the soft-landing story.
Week Ahead · Catalysts to Watch
Three macro catalysts matter most into the coming week:
- Inflation prints: Another “in-line to slightly softer” reading would reinforce the gradual progress narrative and keep the market comfortable with priced-in cuts next year.
- Labor data: Jobless claims and payrolls will be scrutinized for signs that the labor market is cooling in an orderly way rather than rolling over abruptly.
- Central bank communication: Any hint that policy makers are more confident inflation is on a sustainable path lower would be read as a green light for risk, while renewed hawkish language would likely hit duration-sensitive assets first.
How to Be Positioned
In this environment, the playbook remains similar: favor quality over leverage, balance cyclical exposure with defensives, and use volatility to add to high-conviction themes rather than chase every short-term move. The macro backdrop is no longer hostile, but it is not yet benign — and the dispersion between winners and losers is likely to stay high.
As always, the goal of this Sunday note is not to call every tick but to frame the range of plausible outcomes and highlight the data that actually matter for markets. We’ll update the story as the numbers come in.