The blue chip Dow Jones Industrial Average passed the 40,000 level for the first time ever earlier this week, and record highs have also been seen by major indices in Europe and Asia as investors took advantage of expectations of lower interest rates globally.

These markets have remained relatively resilient even as U.S. macro data have shown signs of soſtening, with the PMI and ISM surveys declining in April, labour-market data worsening, consumer confidence dropping and the housing market deteriorating again.

However, the historical playbook suggests U.S. macro weakness has further to go, said analysts at BOA Securities, in a note dated May 17, adding that the most reliable historical indicators of impending U.S. macro weakness are all in place - tight monetary policy, low levels of spare capacity, with the unemployment rate below 4%, and an inverted yield curve.

The typical transmission lags suggest that the headwind from monetary tightening is set to intensify until late in the third quarter or early in the fourth.

“Once the U.S. macro weakness intensifies, we expect it to be reflected in soſtening global growth momentum, leading the market's current insouciance in the face of soſtening U.S. macro data to give way to growing concerns about macro downside risks,” BOA added.

The bank remains negative on European equities, seeing 15% projected downside to the benchmark Stoxx 600 index by the first quarter of 2025, as well as cyclicals versus defensives.