4FT Macro Model Still Signals Expansion

4FT Macro Model Still Signals Expansion

The outlook remains constructive but is slowing: inflation and interest rates call for greater selectivity in the second half of 2026.

The latest update of the 4FT Invest MacroMetrics Model delivers a clear message: the global economy—particularly the United States—remains in an expansionary phase of the economic cycle, although a growing number of indicators are pointing to a gradual slowdown.

The current snapshot of the model assigns 11 indicators to Expansion, 7 to Slowdown, 4 to Recession, and 3 to Recovery. No single phase dominates outright, but the distribution reflects a mature economic cycle in which growth remains the prevailing force while gradually losing momentum.

This outcome is fully consistent with the macroeconomic data released over recent months: inflation continues to moderate only slowly, consumer spending remains resilient, the labor market is still strong, and central banks continue to adopt a cautious stance.

Expansion Still Dominates

The model's greatest strength continues to lie in the production side of the economy.

Indicators currently classified in the Expansion phase include:

• U.S. Capacity Utilization

• Chicago Fed Index

• Manufacturing PMIs

• U.S. Output Gap

• U.S. CPI

• NBER Business Cycle Indicator

Together, these indicators suggest that productive activity continues to support economic growth despite the persistence of elevated interest rates.

Leading manufacturing indicators also remain consistent with an economy that, while less dynamic than in 2025, is still far from entering a broad-based recession.

Signs of Slowdown Are Increasing

Perhaps the most interesting aspect of the latest update is the growing number of indicators migrating into the Slowdown phase.

These include:

• U.S. Unemployment Rate

• Median Consumer Price Index

• Housing Permits

• OECD Exports

• Smoothed U.S. Recession Probabilities

• European CPI

• European Output Gap

This evolution confirms a narrative that has increasingly emerged through data released by the Federal Reserve and other major central banks.

Economic growth is continuing, but at a slower pace than during the post-pandemic recovery.

In other words, the model identifies an economy that continues to expand, although with increasingly limited room for acceleration.

Weakness Remains Concentrated

Only a limited number of indicators are currently classified as being in the Recession phase, yet they deserve close attention.

These include:

• Global Price Index – All Commodities

• U.S. Durable Goods New Orders

• European Union Real GDP

• ECB Interest Rates

This distribution highlights that the most significant areas of weakness remain concentrated in Europe and in sectors that are particularly sensitive to higher borrowing costs.

Meanwhile, the U.S. economy continues to demonstrate considerably greater resilience.

Why the Federal Reserve Can Afford to Wait

Today's U.S. PCE inflation report perfectly reinforces the picture painted by the model.

Inflation is no longer accelerating, but neither is it returning rapidly toward the Federal Reserve's 2% target.

The labor market remains robust.

Consumer spending continues to hold up well.

Growth is slowing, but it is not stalling.

As a result, the Federal Reserve remains in a comfortable position to maintain a cautious monetary policy.

The 4FT Invest model therefore continues to support the "Higher for Longer" scenario, with interest rates likely to remain elevated for several more months, without the need for either additional rate hikes or aggressive cuts.

How to Interpret the Model

One of the defining strengths of the MacroMetrics Model is its ability to move beyond individual indicators and evaluate the economic cycle through the simultaneous interaction of dozens of macroeconomic variables.

The result is a much more stable representation of the economic environment than the often emotional reactions seen in financial markets.

At present, the model delivers four key messages:

• The economic cycle has not yet ended.

• Growth is slowing in an orderly manner.

• Recession risk remains contained, although it cannot be ignored.

• Asset selection will become increasingly important relative to simply maintaining broad market exposure.

In other words, the second half of 2026 may be characterized by wider performance dispersion across sectors, rewarding investors who allocate capital toward the most resilient areas of the cycle.

Examples of Sectors Favored by the Model

Given the current macroeconomic environment, the 4FT Invest model continues to favor a diversified allocation focused on assets that can benefit from moderate economic growth combined with gradually easing inflation.

iShares Core MSCI World UCITS ETF

This remains the model's core allocation for gaining exposure to the resilience of developed economies through diversified holdings across technology, healthcare, industrials, and financial services. Under a moderate expansion scenario, it continues to represent the most balanced portfolio cornerstone.

iShares MSCI World EUR Hedged UCITS ETF (Acc)

The currency-hedged version becomes particularly attractive if the U.S. dollar gradually weakens as the Federal Reserve eventually begins its monetary easing cycle.

iShares MSCI Emerging Markets UCITS ETF (Dist)

A controlled slowdown in the U.S. economy combined with a potentially weaker dollar could gradually improve the outlook for emerging markets, particularly across Asia, where valuations remain compelling.

iShares € High Yield Corporate Bond UCITS ETF

With economic growth still positive and recession risk relatively limited, the high-yield segment may continue offering an attractive balance between return and risk. However, careful credit selection remains essential should economic conditions deteriorate further.

iShares STOXX Europe 600 Real Estate UCITS ETF (DE)

European real estate could begin benefiting from expectations of gradually stabilizing interest rates during the second phase of the cycle. Nevertheless, the sector remains highly sensitive to ECB policy decisions and should be approached gradually.

iShares European Property Yield UCITS ETF EUR (Acc)

Income-oriented European real estate may also become increasingly attractive if financing costs begin to decline over the coming quarters, supporting the repricing of high-dividend property assets.

Summary

The latest reading of the 4FT Invest MacroMetrics Model confirms that the global economy is not entering recession, but rather transitioning into a more balanced and less synchronized phase of expansion than in previous years.

For investors, the dominant theme of the second half of 2026 will not be anticipating an imminent recession, but identifying the sectors capable of continuing to generate value in an environment characterized by still-elevated interest rates, gradually moderating inflation, and moderate economic growth.

It is precisely during this stage of the economic cycle that a quantitative approach based on integrated macroeconomic analysis can provide a meaningful competitive advantage, allowing portfolio allocations to adapt proactively as economic and financial conditions continue to evolve.

Disclaimer: The information contained in this article is provided for informational and macroeconomic analysis purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. Past performance is not indicative of future results, and all investment decisions remain the sole responsibility of the investor.