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QI research 11.24.25 dashboard

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Quill Intelligence

LONG MACRO

Recession probability to rise into 2025’s second half as private demand underperforms. The tariff shock should generate greater risks for a downshift in business investment and a more challenging environment for consumer cyclicals vis-à-vis consumer non-branded noncyclicals.

Manic shifts in U.S. politics harken first a deflationary gully to cross followed by the threat of impeachment and ultimately, a fourth change in administrations in as many U.S. presidential elections, a first in sequential terms since the precipice of the U.S. Civil War. The subsequent pendulum swing will manifest as Universal Basic Income/Modern Monetary Theory, and with it, the secular rise in inflation being prematurely predicted today by those positioned to profit from being short Treasuries.

Saturday Intelligence Briefing— 11.29.25

Feeling like you’re back in balance? Markets certainly are after November’s month-end rebalancing of millions of Target Date 401(k) accounts. Until this dynamic is sufficiently demographically and macroeconomically disturbed, the end-of-month and end-of-quarter act of ‘righting’ accounts will keep alive the mantra of “The Flow Always Knows.”

As frustrating as this reality is for fundamentalists, we can give thanks for one thing: Between now and December 10th, Federal Reserve policymakers are in FOMC Blackout As we blissfully head into this quiet period, Fed rate cut probabilities have swung in favor of our viewpoint, and notably, that of the doves on the Committee. Consider the November 19th low point of a 29% probability of a third 25-basis-point (bp) rate cut this year to Friday’s close of 83%. The closer, if you will, was New York Fed President John Williams. His waxing dovish on November 21st started the resumption of rising odds. The culmination arrived this past week with a run of anemic data which reinforced rates traders’ views about the near-term path for monetary policy.

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TACTICAL

RATES:

Short-end and Belly best opportunities for total return. Rally keys off weaker macro. Challenged private demand, higher unemployment and lower core inflation raise Fed rate cut probabilities.

Long-end holds at elevated levels with de facto caps at 4.5% for the 10-year & 5% for the long bond with the term premium supported by fiscal malfeasance exacerbated by falling sovereign revenues and despite diminishing stimulus to the U.S. consumer.

Curve view – Bull steepener in 2025’s second half.

USD:

A sidelined Fed contrasting with most global central banks easing catalyzed a selloff in the greenback. A Fed forced to play catchup could easily thin the massively crowded trade, especially as global trade weakness impairs an open global economy vs. its closed U.S. counterpart.

CREDIT:

•  Underweight HY, overweight strong cash-flow IG

•  Lower-rated buckets at risk of dispersion with Fed Higher for Longer

•  Jobless claims deterioration makes a cautious Street rethink already-wider-spreads 2025 expectations, i.e., up default estimates as bankruptcy cycle speeds up and size

•  Fitch’s acknowledgement of cyclical consumer sector “deteriorating” fits this view

EQUITIES:

OW     Utilities
OW     Fossil Fuel Energy
OW     Senior Living

UW     Consumer Staples
UW     Consumer Discretionary
UW     Large & Midsize Banks

OTHER ASSETS:

•  USD view supports UW commodities & EM

•  Oil is a different story with geopolitical risk ramping (Israel v Iran)

•  Long MOVE to capitalize on runaway lending to Nondepository Financial Institutions triggering a credit event