00:00So we're seeing a flight to safety to treasuries. Meanwhile, I believe you're getting questions from clients about, I know it's impossible to fully time the market, but I think they want to know, is the pain that we're seeing today all that red?
00:13Is this the worst it will be? Or will the market continue to go down? And is there a better buying opportunity for equities in the future?
00:22Look, when we are considering investor behavior in recent years, buy the dip mentality has been so strongly ingrained in investor psyche.
00:34And we are really curious to see whether the same attitude will kick in in short order again.
00:43We think that we might have to wait a little bit for that. However, the simple reason being is we're not done with negative headlines.
00:53After the announcements yesterday, we expect to see all the retaliation announcements from U.S. trade partners.
01:02That is likely to add to volatility. Then you will see a response from the U.S. to those retaliation announcements, which further could exacerbate fears within the market.
01:14So we think for the time being, it's probably too early to buy the dip. There could be more volatility ahead.
01:21Having said that, when we're looking at the range of risk indicators, we're close to hitting peak bearishness in a number of segments of the market.
01:31So once policy clarity is gained, once we have better information about what the end state of this trade escalation is likely to look like,
01:42we do believe there will be some investors who will be willing to step into the void.
01:48But we might have to wait a little bit longer for that.
01:52And those investors that are likely to step in are the ones that do not believe in recession as a base case scenario for the U.S.
01:59We are definitely in that camp. This is not our base case assumption.
02:04But clearly, there's also a lot of investors who are very worried about recessionary risk ahead.
02:12You fed into my next question. I was about to lay out a math problem where bearish markets, inflationary economic conditions.
02:20Are we headed towards a recession? But you just said that is not your base case.
02:26So what is your base case for the U.S. economy right now?
02:30Look, we absolutely assume slower growth as a result of all that is happening around us.
02:37It's inevitable that this will have negative impact on U.S. growth ahead.
02:43However, we believe that it is still likely that we settle around one and a half percent growth in the U.S.
02:50There is some downside risk to that number.
02:54But from one and a half percent, even with some downside, there's quite a long way to negative readings.
03:01And to us, the key question is really about the health of the U.S. consumer, because so far,
03:08U.S. consumer has proved itself to be resilient to the extent that very few investors expect it.
03:16Two key factors really helped U.S. consumers. First, the fact that the labor market's been pretty strong.
03:24We have not seen any meaningful pickup in layoffs within the U.S. market, away from all the drama to do with Doge.
03:35We have not really seen any material negative shift in the labor market.
03:40And the other thing that helped is so many consumers refinance mortgages when the rates were around three percent.
03:47So they're not feeling the pinch from higher level of interest rates.
03:52If we start seeing layoffs increasing in a material way, to us, that would be a reason to worry.
04:02And that would be a reason to start discussing recession as a more probable scenario.
04:09But for the time being, we're just reflecting on the fact that when we're looking at sentiment data, it's been quite wobbly.
04:16It's been quite weak in recent weeks. However, when you look at hard data, it has been pretty robust.
04:24So we're not seeing the evidence yet in U.S. economy of the consumer weakening aggressively.
04:30And for as long as that is the case, we do not believe a recession will happen.
04:35In the same way as recession did not happen in 2022, when so many investors were expecting that outcome.
Comments