Macro Monitor
Bank Lending Slowing? Watch Credit Spreads
Despite heightened uncertainty from shifting trade policies, credit markets remain relatively stable—at least for now. While bank lending standards are tightening and loan demand is softening, market-based indicators like credit spreads and bank stock performance suggest credit risk is contained. If that holds, the broader economy may avoid serious damage, even as tariffs rise.
Risk Aversion Index: Stayed On “Higher-Risk” Signal
While the “Trump put” materialized in May, the markets are again becoming complacent toward both policy uncertainty and geopolitical risks.
Anatomy Of A Major Selloff—A Cross-Asset Look
In exploring how cross-asset behavior differs between recessionary and non-recessionary market selloffs, a more striking conclusion emerged: The presence of a Fed put—or the absence there of—looks to be the more powerful force in shaping market dynamics across assets.
Risk Aversion Index: Stayed On “Higher-Risk” Signal
Despite recent policy back-pedaling, volatility is liable to stay elevated for the time being.
Slowdown Or Recession? Watch The S&P 500 Index!
Uncertainty surrounding Trump’s second term and the risk of escalating tariffs have shifted market focus from inflation to growth, raising fresh concerns about a potential recession. Our updated Recession Dashboard shows a delicate balance, with risk now slightly above 50%—driven largely by weakness in equities and full-time employment. While some indicators have improved, the market remains the most important signal to watch. A sharp selloff could tip the economy from slowdown into recession territory.
Risk Aversion Index: Stayed On “Higher-Risk” Signal
Within fixed income, we remain defensive toward credit, especially the low quality segment.
Germany—Sick Man Of Europe No More?
Despite volatile headlines, the German DAX index has staged a stellar double-digit rally since the start of the year—outpacing even the most “exceptional” S&P 500. In fact, over the last year or so, the DAX has now pulled ahead of the S&P 500.
Risk Aversion Index: A New “Higher-Risk” Signal
Our Risk Aversion Index moved higher in February and triggered a new “Higher-Risk” signal. A mechanical indicator can experience a prolonged period of whipsaws as there is a much greater amount of noise in the market these days.
Bear Steepening In An Easing Cycle—Nothing To Lose Sleep Over
Bond market reactions are consistent with the historical norm, so far, and suggest that a reversal of the current bear steepening is more likely than not.
Risk Aversion Index: A New “Lower-Risk” Signal
Our Risk Aversion Index ticked lower again in January and triggered a new mechanical “Lower-Risk” signal.
Top Charts Of 2024—Persistent Themes For 2025
We present our favorite charts from the past year and examine some of the key developments poised to have a significant impact in 2025.
2025 Time Cycles—Nothing To Worry About?
Overall, most patterns suggest a decent year for global equity markets. Expectations are already very high, though, and that leaves much less room for error. We strongly caution against extrapolating U.S. equities’ 2024 performance into 2025.
Risk Aversion Index: A New “Higher-Risk” Signal
While the policy regimes in both the U.S. and China are likely to support risky assets, today’s level of optimism doesn’t allow much of a cushion for disappointment.
The Dollar’s Déjà Vu?—Trump’s Second Edition
The Trump rally was the dominant theme in November, with the U.S. dollar playing a big part. Over the past few weeks, the dollar has appreciated significantly. The latest surge in the DXY index, both in magnitude and velocity, bears a striking resemblance to that which followed Trump’s unexpected win in 2016.
Risk Aversion Index: Stayed On “Lower-Risk” Signal
The Trump win, the Fed’s easing cycle, and favorable seasonality should support risky assets. However, expectations are very high and there is little room for disappointment.
Yield Curve Steepening—Stalling But Trend Intact
Given the beginning of an easing cycle in September and the Trump Trade in October, the lack of steepening in the yield curve is intriguing. While tighter financial conditions are likely a challenge to the steepening move, policy regimes and the term premium are favorable toward further curve steepening.
Risk Aversion Index: A New “Lower-Risk” Signal
The market keeps brushing aside the increase in geopolitical risks and we continue to believe the risk is underpriced. On the other hand, the Trump win and favorable seasonality should support risky assets at least in the near term.
China’s “Whatever It Takes” Moment—“Believe Me, It Will Be Enough”
Market reaction to the latest flood of monetary and fiscal stimuli has been spectacular. While conviction about Beijing’s attempts to revive its flagging economy has been severely lacking, this time we should believe it. It’s certainly the right medicine China needs and the spark of confidence these actions will ignite should not be underestimated.
U.S. Election Study Update
Our assessment shows that “who” wins the White House does not seem to matter that much to most major asset classes. Nevertheless, we believe a strong dose of caution against political and/or geopolitical risk is prudent.
Risk Aversion Index: Maintaining Its “Higher-Risk” Signal
Our Risk Aversion Index edged lower but stayed on the “Higher-Risk” signal.
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