Five things to watch in markets in the week ahead
The strategy I deploy in my macro hedge fund, Palinuro Capital, relies on many quantitative inputs, and one of the most important remains our Quadrant Asset Allocation Model.
The principles are simple:
1. Estimate future growth, inflation, and the Central Bank reaction function
2. Gather quantitative data to measure what the consensus believes about these
3. Compare your model expectations with the consensus
4. Find a large enough discrepancy between your model and consensus
5. Deploy long/short macro trades in asset classes that historically benefit and suffer from such unexpected macro regime shifts
So, where are we today?
For the next 6-12 months, consensus expects an acceleration in nominal growth and sticky inflation above target alongside a dovish reaction function by the Fed.
This puts consensus in the top-right quadrants, oscillating between ’’The Squeeze’’ and ’’Goldilocks’’.
Global money printing is set to accelerate rapidly in H1 2026, driven by fiscal spending around the world (e.g. Germany, Korea, Sweden, US with OBBB) coupled with debt-funded large AI capex.
In our framework, commodities remain a largely underowned asset alongside specific Emerging Market risk assets.
Yet in the short run, the US labor market is showing increasing signs of fragility: tariffs are inducing fiscal tightening (e.g. act as a tax) and AI capex doesn’t create jobs.
In the short run, consensus might be ignoring downside risks to the labor market and a more dovish Fed.
What are your current thoughts on the best macro asset allocation going forward?
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