Market and Economy

• Trump’s shifting tariff policies are creating market uncertainty, with inflation indicators rising and consumer confidence hitting a 12-year low
• The federal deficit has reached nearly $1.3 trillion for the first five fiscal months—approximately $500 billion more than last year
• OECD has downgraded global GDP growth projections to 3.1% in 2025 and 3.0% in 2026
• Germany has modified its debt brake to exempt defense spending and add €500 billion for infrastructure, aiming to increase defense spending to 3.5% of GDP by 2030
• China’s manufacturing PMI increased to 50.5 in March, with industrial output up 6.9% in early 2025 despite tariff concerns

• European equities outperformed the U.S., driven by defense stocks and a moderate recovery in industrial activity.
• The U.S. housing market hit a historic low, with the Pending Home Sales Index showing the weakest January in 25 years due to high mortgage rates (7.04%).
• The top 10% of earners now account for over 50% of total U.S. consumer spending, compared to 36% in the 1990s.
• The consumer savings rate reached a 6 month high, with lower-income groups rebuilding savings, leading to a downturn in consumer spending.
• Fund managers are increasingly worried about stagflation, and economic surprises have turned negative again in 2025.
• U.S. physical gold supply is tightening, causing leasing rates to spike and price spreads between London and U.S. gold markets to reach a five-year high.

• US stocks had a volatile start to the year, with the Fed keeping rates steady, new trade uncertainty, and disruptions in the tech industry.
• Trump announced new potential tariffs on Mexico, China and Canada, sending gold to new all time highs and routing crypto.
• China’s DeepSeek R1 AI model, reportedly trained for just $6 million, triggered a 3.5% drop in the NASDAQ and a 12.8% decline in NVIDIA (NVDA), while US regulators launched a probe into potential violations of semiconductor export controls.
• US economic data showed manufacturing optimism but slowing services due to continued inflationary pressures.
• The Baltic Dry Index (BDI) dropped 25% to a 23-month low, reflecting weaker industrial demand globally and shipping overcapacity.

• The U.S. faces a massive $2 trillion federal budget deficit, with limited room for cuts in key areas such as Social Security, Medicare, defense spending, and interest expenses.
• DOGE (Department of Government Efficiency) unlikely to make real progress.
• Despite the Federal Reserve’s rate cuts, long-term Treasury rates and mortgage rates have risen significantly, almost inversely.
• Long-term bonds are now riskier due to rising inflation and interest rates, leading to both declining bond prices and eroding purchasing power.
• Higher interest rates increase the discount rate for future earnings, potentially lowering stock valuations.
• If inflation persists and interest rates rise further, the Federal Reserve may reintroduce quantitative easing, which could accelerate inflation.
• Reduced global confidence in U.S. treasuries is leading some countries to pivot toward alternatives like gold and Bitcoin.

• In 2024, the S&P500 surged by 23%, continuing its strong performance from 2023 and achieving the best back-to-back gains since the late 1990s.
• US equities now account for 67% of global equity markets.
• Despite the US 30-year fixed mortgage rate climbing to 7.0%, the housing market remained strong with median home prices increasing by 48.2% compared to pre-pandemic levels.
• The Treasury faces significant challenges in rolling over $3 trillion in short-term debt, which could lead to higher long-term yields and potential market instability.
•The Federal Reserve revised its inflation projections upward for the next few years, indicating a higher terminal rate and limiting the number of rate cuts in 2025.
• Congress temporarily extended funding through March 2025, but the looming debt ceiling poses a risk of default.

• November was a strong month for markets, with the S&P 500 achieving its best year-to-date performance since 2013, driven by optimism post-election.
• The U.S. ended its fiscal year with a $1.83 trillion deficit, the third-largest on record, with spending far outpacing receipts.
•Proposed deficit reduction plans aim to cut spending, but significant hurdles remain in addressing entitlements and achieving sustainable debt levels.
• Credit card balances are climbing, especially among prime borrowers, while delinquency rates are higher than pre-pandemic but still below 2008 peaks.
• Black Friday spending rose 3.4% YoY, with online sales surging 14.6%, partly driven by increased use of Buy-Now-Pay-Later (BNPL) agreements.

• The DOGE (Department of Governmental Efficiency) Committee faces significant challenges in addressing the $2 trillion deficit, with most expenditures politically untouchable.
• Inflation is expected to rise by 2025, driven by persistent deficit spending and nominal GDP growth.
• Gold remains a strong long-term hedge despite recent sell-offs, with equities favored over bonds during inflation.
• Natural gas may see growth due to rising electricity demand, while crude oil demand remains stagnant.
• Healthcare reform faces resistance due to lobbying, despite inefficiencies driving up costs significantly.
• Subsidies for green energy and electric vehicles may decrease as deficit concerns take priority.

• GDP grew by 2.8%, with inflation cooling to 2.4%, though food and shelter costs remain high.
• Job openings dropped to a three-year low, and layoffs reached their highest since 2020.
• 33% of auto loans are underwater, with record-high negative equity and increasing defaults.
• Rising deficit and long-term inflation fears push Treasury yields higher, impacting future rate cuts.
• The Top 10 US Companies now make up 18% of global stock market capitalization. The S&P500 is now a record high 46% of Global GDP.

• Equity markets have strong year-to-date returns, with the S&P500 having its first positive September in 5 years.
• Gold and silver surge amid continued economic uncertainty and global conflict fears.
• The Fed’s 50bps rate cut spurred a market rally, but economists are split on whether it signals an over-correction.
• China’s economy struggles with deflation, prompting the PBOC to introduce aggressive stimulus measures aimed at boosting GDP to 5% by 2024.
• The U.S. faces growing debt concerns with interest payments projected to exceed $1 trillion by 2025.
• Major dockworkers’ strike threatens to disrupt supply chains further.

• Stocks rebounded from a 10% correction in August, but the market may be overestimating the likelihood of aggressive Fed rate cuts.
• The number of banks on the FDIC’s ‘problematic list’ is increasing, with several facing unrealized losses in excess of 100% of tier-1 equity.
• The US economy shows signs of recession, with unemployment triggering the Sahm Rule, and consumer spending outpacing personal income, despite steady GDP growth.
• Gold demand is rising as central banks increase purchases, driven by concerns about inflation.
• Market concentration remains high, with growth sectors dominating global market capitalization, even as valuation metrics suggest overvaluation similar to the 2000 dot-com bubble.

• Fed left rates unchanged once again, though said that “some further progress” had been made toward the 2% inflation goal.
• While the labor market seems to be weakening, with unemployment rate jumping to 4.3%, inflation is still sticky at 3.0% — the same place it was in June 2023.
• Treasury markets are becoming less liquid, with excessive deficit spending driving up aggregate issuance, with little extra demand.
• 2023 was the worst year on record for property insurance companies, with a more than $15.2 billion underwriting loss.
• Retirement balances have lagged the population’s age, with the BLS projecting more people 55+ continuing to work past the retirement age.

• Equities hit all-time highs, led by large-cap stocks, with 61% of S&P 500 returns coming from the “Magnificent 7” megacap tech stocks.
• The Fed remains cautious about interest rate cuts, needing more sustainable inflation reduction, while unemployment claims reached a two-year high.
• Despite muted gasoline demand thusfar, strong energy demand from record heat and the projected strongest travel season since before the pandemic saw crude prices broadly higher.
• Mortgage rates are still at their highest since 2001, muting demand and causing increased supply in the housing market.