Michael Hartnett, BofA | Washington DC Now In Recession And Will Drag US Down... But Riyadh Accord A Key Wildcard Zeitgeist quotes: - “Don’t know anyone who knows anything about German politics…yet everyone I know thinks Germans announce fiscal stimulus after their election next week.” - "incumbents voted out of office in 26 of 32 elections in ’24…latest polls show populist parties on track for 32% of German vote, i.e. close to the 1/3 threshold required to block German structural fiscal boos" - BIG (bonds, international stocks, gold): the spike in recent new 'paradigms' such as DeepSeek, Russia-Ukraine, Euro bonds, and notes that there are "lots of big secular stuff causing big secular breakouts (Europe finally above its 2000 high)...but the cycle still matters and China, Germany, Japan, Korea are where you go when global PMI cycle turns higher and US "blue collar semis” (see ADI, MCHP, TXN, NXPI) corroborate turn. - China house prices are on the rise, up in 24 of 70 big cities in Jan and if China retail sales accelerate >6% YoY, global investors will go even longer China (not just the AI-linked BATX2 stocks). US housing is "not-so-good", as mortgage apps remain pinned to lows and homebuilders at 16-month relative lows and down -30% since Oct, "never a good sign for US consumer." - US stocks are peaking vs RoW...and thanks to China's DeepSeek, US tech leadership of “Magnificent 7” has become “Lagnificent 7." - in the new world of geopolitics "govt is expensive, war is expensive, but peace is cheap…so peace it will be" which is also positive for global stocks. - since "it’s always about rates & EPS" the current trading range for US stocks will either end via lower inflation (break to the upside) or weaker growth (break to downside). - Trump is unlikely to provoke inflation in the first half of 2025 via big tariffs/immigration cuts, but the bigger risk is unanticipated slowdown in growth on housing, tailwinds of wealth effect & jobs growth tailing off, inflation nagging consumer confidence, US government heading into recession. And indeed the slowdown is starting to be flagged by outperformance of bond-sensitives & defensive stocks (staples best performing sector past month +8%). - fund managers have reported a plunge in cash as % AUM to 3.5%, lowest level since 2010 which means there is limited cash on sidelines to buy dip, it also maintains the Fund Managers Survey “sell signal” which was triggered in December and is now into its 3rd month. And since the Dec “sell” signal was triggered, “Mag7” -5%, Nasdaq -1%, S&P500 +1%, ACWI +2%.