Recession-Hard/Soft Landing
This year’s plunge in tech stocks followed by the recent strong countertrend rally is eerily reminiscent of 2000. But the market and economic parallels between 2025 and in 2000 run much deeper. This report lists 10 striking parallels between 2025 and 2020, then highlights some important differences, and ends by describing how the rest of 2025 might unfold based on a playbook that is: 2025 = ‘2000 with some tweaks.’
A weakening economy will apply downward pressure to Treasury yields, but the Trump term premium will keep long-dated yields higher than they would otherwise be. This makes Treasury curve steepeners the most attractive trade in US fixed income.
Short-term pain from Trump-related concessions, fiscal tightening amid a US and Mexican slowdown, and rising labor slack will weigh further on Mexican assets. But long-run, policy direction will capitalize on the nearshoring trend and resume the trend of Mexican asset outperformance relative to other emerging markets.
Our Portfolio Allocation Summary for May 2025.
It may take several months for the tariff shock and policy uncertainty to filter through the real economy, but survey-based data are already sending a warning. Equities have priced in a lot of good news, and investors are too sanguine about the risk of a US recession.
This year’s corporate bond sell off has hit high-yield more than investment grade, and high-yield spreads have turned relatively more attractive as a result.
MacroQuant sees the risks to US growth as being to the downside and the risks to inflation as being to the upside. Such a stagflationary brew justifies an underweight on stocks.
MacroQuant sees the risks to US growth as being to the downside and the risks to inflation as being to the upside. Such a stagflationary brew justifies an underweight on stocks.
US Treasuries typically outperform both equities and global government bonds during downturns. Recent political shifts could lessen that outperformance this cycle, but we doubt it will disappear completely.