Marko Papic on US Equities, AI Capex, and Global Growth Concerns

Cautious Outlook on US Equities

• ⚠️ Marko Papic expresses caution on US equities, citing concerns about sticky US 10-year Treasury yields at 4.15%.
• 💡 The US consumer, representing 68% of GDP, needs lower borrowing rates to sustain economic health, which cannot solely rely on AI capex.
• 📉 Doubts about AI adoption and the need for resolved global growth concerns, particularly from China, contribute to a less bullish stance on risk assets.

Fed Policy and Yield Curve Dynamics

• 🏦 Papic agrees with the market that the front end of the yield curve will come down more aggressively than anticipated, but notes this could be bearish if borrowing costs don't decrease.
• 📈 He anticipates some volatility and a potential downturn in the next three months, but remains modestly bullish on the S&P 500 for the next 12 months with a target of 7,500 for 2026.

Economic Indicators and Policy Focus

• 🏠 A potential shift in the Trump administration's focus towards market-relevant policies like housing and affordability could support the US economy.
• 📊 Positive leading indicators such as all-time highs in semis, Dow transports, and rising prices for copper suggest potential green shoots.
• 💰 Papic acknowledges the possibility of a positive economic outlook indicated by rising yields but remains hesitant due to concerns about a long-standing cash-driven economy fueled by government fiscal outlays.

The Importance of Lower Borrowing Costs

• 📉 Papic emphasizes the need for the 10-year yield to come down slightly to unlock further market gains.
• 🎯 He highlights the potential for the Trump administration to lower the spread between 30-year mortgage rates and the 10-year yield, which would benefit the US consumer.
• 💡 The current economic environment requires a reduction in borrowing costs for sustained growth, especially if the government's fiscal stimulus is no longer a primary driver.