Macro Minute: Week of April 21, 2025
Don’t focus on the details. That is my current thinking on how to think about this market and economy. Let me try and explain why I am thinking this right now. After the election results, business leaders and market commentators were euphoric on the prospect of having the most pro-business administration in American history. Once policies started being enacted we got a good quarter of market reaction to see what the trends would be. Before Trump’s liberation day tariff announcement, we got a taste of what I think will be how allocations will shift. Since that day the data has gotten very messy, but that does not mean that we cannot look back to the first quarter as a guide of how we should think about portfolio positioning over the coming years.
The survey data is a mess because no one has any certainty and survey participants have little direction on intentions. Imports and exports are all over the place right now. The data to watch is jobs and employment data. With the hard and soft data being in such flux, they are not going to be great indicators of how markets will move. The determination of direction will really depend on whether we have a job-loss driven recession. There is a high probability we will have a couple of quarters of negative GDP, but that in and of itself does not necessitate a recession. There needs to be a larger economic decline that accompanies it. As of now, it is uncertain if this will happen or if the economy will just muddle through.
We need to be cautious of becoming too bearish on markets even though we are seeing weakness. We must not forget that just because the downturn has been driven by policy decisions, it can still be reversed. Without job loss, markets can recover quickly. Covid is a great example of how policy driven decisions drove markets. The virus added uncertainty, but the government decided to stop the economy and give fiscal payments, which resulted in a move of the markets. Things may look dire, but situations can change.
Going back to the first quarter, what were some observable trends? First, countries outside the United States are going to be stimulating. Second, the dollar is weakening versus other currencies. Third, because the rest of the world is stimulating, global bond yields are rising. Fourth, gold has been and looks to continue to be in a bull market. Fifth, international equities outperformed U.S. equities for fundamental reasons. Lastly, fund flows that had been sending the excess savings of the world to the U.S. capital markets are reversing.
The one thing that I keep thinking about in this environment is to stay diversified. This includes keeping international stocks as part of an equity exposure. Remember uncertainty breeds opportunity.
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