Rates & Fed Policy: Markets are overly optimistic on rate cuts; inflation remains sticky, keeping the Fed cautious (DeepMacro).

Equity Positioning: Systematic funds are heavily tilted toward equities, with allocations at or near record highs (MenthorQ).

China Equities: Narrowing gap between H-shares and A-shares signals opportunity; liquidity and household cash provide strong support (HSBC).

Market Breadth: Short-term indicators are overbought, but long-term breadth remains healthy (Dantes Outlook).

Fixed Income: Attractive yields unlikely to return to pre-pandemic lows; belly of the curve (5–6 year maturities) offers a balance of income and rate risk (Vanguard).

Municipals & Credit: Municipal bonds and investment-grade credit stand out as high-quality, inexpensive options.

Equities: Active managers struggle against the Magnificent Seven; indexing provides a strong foundation, while Industrials, Financials, and Healthcare offer selective momentum opportunities (Morningstar, Dantes Outlook).

Takeaway: Stay disciplined, revisit bond allocations, and avoid overstretching for yield or risk.

Market Breadth: NYSE advancers outpaced decliners 4-to-1, suggesting resilience beneath the equity rally (SentimenTrader).

Macro Signals: Inflation remains domestically driven; Fed unlikely to cut quickly. U.S. dollar regains strength versus peers (DeepMacro).

Dantes Outlook Positioning: Trimmed active tilts, maintaining preference for U.S. equities while adding emerging markets. Funded by profits in gold and inflation hedges. Launched tactical semiconductor strategy based on momentum signals.

Bond Market Evolution: Portfolio trading volumes in U.S. corporate bonds surged 54% in H1 2025, boosting liquidity and efficiency (Barclays).

Investor Behavior: Morningstar’s “Mind the Gap” shows investors underperform funds by ~1.2% annually due to timing mistakes.

Forward-Looking Markets: Historical data shows equities often rebound after major payroll revisions, underscoring how markets anticipate economic shifts (Fidelity).

Visit us at www.dantesoutlook.com

Topics Covered:

Portfolio construction in today’s macro climate — balancing risk, correlations, and tracking error.

Credit market health — Morningstar DBRS and Proskauer data show improving leverage, coverage, and default rates.

Bond market reset — Deutsche Bank’s historical context on the worst 5-year Treasury returns and forward expectations.

Opportunities in core bonds — PIMCO’s view on yields, international duration, and diversification benefits.

DeepMacro model positioning — long USD, contrarian equity overweight, and rates strategy.

Trend-following under pressure — why CTAs are lagging in 2025.

Emerging markets strategy — Victor Zhou on activeness, tracking error, and the under-researched alpha potential in EM small caps.

Key Takeaways:

Dollar correlations are a driver of our U.S. equity overweight.

Credit fundamentals are stronger, with default rates falling.

Bond valuations have reset, creating better entry points, but real returns may remain modest.

Trend-following struggles highlight the need for multi-strategy systematic approaches.

In emerging markets, higher activeness and small-cap allocations improve alpha opportunities.

References:

Morningstar DBRS

Proskauer Private Credit Default Report

Deutsche Bank Global Markets Research

PIMCO Fixed Income Outlook

DeepMacro Model Positioning

State Street Emerging Markets Strategy Research