Strategists at Citi are keen on China tech instead

Just when investors thought it couldn’t get worse, Monday’s brutal selloff was a hold-their-beer day.

And while Tuesday is looking a bit better, speculation on whether stocks have bottomed should probably wait until a CPI update on Wednesday. Softer-than-forecast data could relay the message that there’s room for the Fed to ease, bringing some relief to stocks, but higher inflation might do the opposite, and send stocks sinking again.

Wall Street strategists, who headed into 2025 armed with bullish forecasts are getting cautious. Citigroup has now joined that camp, as it has just downgraded U.S. equities to neutral from an overweight, or bullish, stance since Oct. 2023.

In our call of the day, a team of Citi strategists led by Dirk Willer said it’s now clear that “U.S. exceptionalism is at least pausing.” Alongside that shift, they upgraded China stocks to overweight, which in balance, now leaves their overall global equity view at neutral.

Willer and the team explained that two of their bearish signals have now been triggered for U.S. stocks. One was the S&P 500 breaking its 200-day moving average “at a time when the market is/has been extended.”

The second signal was triggered by five-straight soft sessions for four of the seven so-called “generals,” referring to the major technology stocks that have been leading the market higher for the past two years.

Already mired in a tough year, the “Magnificent Seven” grouping of large technology stocks collectively lost $759 billion in market cap on Monday, the biggest one-day loss of market cap on record. 

Last week, the Citi strategists felt some of those bearish signals were close to triggering, but they were reluctant to move forward until after Friday’s payrolls data, which could have changed the market’s trajectory. However, the data not only failed to do so, but Citi’s economists believe it was likely the last strong jobs report before DOGE cuts—government reductions executed by the Department of Government Efficiency—along with voluntary resignations and a weaker economy take hold.

Willer and his team emphasized that their neutral stance on U.S. stocks is short-term, based on a three- to six-month outlook. “In the bigger picture, we doubt that the AI bubble is already fully played out, and we would expect for the U.S. to remain one of the leaders, maybe jointly with China, while the AI theme is intact,” they said.

“But for reasons mentioned above, we believe this is unlikely to be the right view for today, as we expect more negative U.S. data prints.”

As for China stocks, the strategists said those assets have been screening as attractive for some time, but they’ve been wary up to now due to tariff risks. The strategists flagged two big reasons to love China: 1) DeepSeek has “proved that China tech is at the Western technological frontier (or beyond) despite export controls and 2)President Xi Jinping has embraced the tech sector, albeit belatedly. The sector is still relatively cheap versus other global AI assets, even after a big rally.

Citi strategists prefer the Hang Seng China Enterprises Index which is up 20% year-to-date, as they said the index outperformed the Shanghai Composite during the 2018 tariff wars. The Hang Seng Tech index has climbed 33% so far this year, versus a nearly 10% drop for the Nasdaq Composite. The U.S.-listed KraneShares CSI China Internet ETF has shot up 21% this year.

The Citi strategists argued that there might be some dovish signs on the horizon, such as a report that President Trump may visit Xi in China as soon as next month. Tariffs on China, said Willer and his team, have already risen by 20% and “have had a limited impact on the market,” and in their view, the U.S. will likely be in “deal-making mode.”

The markets

After the worst day for the S&P 500 since December, U.S. stocks. Treasury yields are steady and the dollar is dropping.

The chart

The chart from Goldman Sachs maps out where the bank sees U.S. tariffs hitting on different sectors on countries and sectors. Goldman cut its U.S. growth forecasts on Monday, not for data, but because of a more negative view on those duties.

“We now see the average U.S. tariff rate rising by 10pp [percentage points] this year, twice our previous forecast and about five times the increase seen in the first Trump administration,” said chief economist Jan Hatzius.  

Read the full article HERE.

US gauges are showing their highest levels of credit risk this year Monday morning, as investors exhibit fresh concern about the state of the country’s economy in light of tariffs and cuts to the federal workforce.

As numerous investment-grade borrowers are poised to opt against issuing bonds Monday, the Markit CDX North American Investment Grade Index widened as much as 2.06 basis points to 53.54 — another 2025 high.

The gauge rises as credit risk climbs. The Markit CDX North American High Yield Index, which falls as credit risk increases, declined as much as 0.5 point to 106.4 — its lowest in six months.

Equities have opened the week with declines around the world amid worries about the US economic outlook. That after the Nasdaq 100 Index sank into correction territory on Friday, with a mixed jobs report released late last week unable to provide solace to investors.

If a US recession does materialize in 2025, which Barclays Plc sees as “improbable but no longer unthinkable,” it will be led by consumer weakness, strategists led by Bradley Rogoff and Dominique Toublan wrote in a note Friday.

“We increasingly view a large-scale pullback in spending driven by uncertainty about tariffs, DOGE layoffs and weakness in equities as a non-trivial tail risk.”

Read the full article HERE.

Job growth was weaker than expected in February though still stable despite President Donald Trump’s efforts to slash the federal workforce.

Nonfarm payrolls increased by a seasonally adjusted 151,000 on the month, better than the downwardly revised 125,000 in January, but less than the 170,000 consensus forecast from Dow Jones, the Labor Department’s Bureau of Labor Statistics reported Friday. The unemployment rate edged higher to 4.1%.

The report comes amid efforts from Elon Musk’s Department of Government Efficiency to pare down the federal government, starting with buyout incentives and including mass firings that have impacted multiple departments.

Though the reductions likely won’t be felt fully until coming months, the efforts are beginning to show. Federal government employment declined by 10,000 in February though government payrolls overall increased by 11,000, the BLS said.

Many of the DOGE-related layoffs happened after the BLS survey reporting period, meaning they won’t be included until the March report. Outplacement firm Challenger, Gray & Christmas reported earlier this week that announced layoffs under Musk’s efforts totaled more than 62,000.

Health care led the way in job creation, adding 52,000 jobs, about in line with its 12-month average. Other sectors posting gains included financial activities (21,000), transportation and warehousing (18,000), and social assistance (11,000). Retail posted a decline of 6,000 workers.

On wages, average hourly earnings climbed 0.3%, as expected, though the annual increase of 4% was a bit softer than the 4.2% forecast.

Stock market futures moved higher following the report while Treasury yields were lower.

“We are not putting much stock in the jobs report at the moment,” said Byron Anderson, head of fixed income at Laffer Tengler Investments. “Today’s data was mixed at best, but we still have no clarity on the economy moving forward with the Trump turmoil. The longer we have chaos and turmoil from Trump, the higher the probability that we will eventually have data trend negative.”

Though the report indicated continued job growth, some of the details were a little less positive.

The labor force participation rate slumped to 62.4%, its lowest level since January 2023, as the labor force declined by 385,000. A broader measure of unemployment that includes discouraged workers and those holding part-time positions for economic reasons jumped half a percentage point to 8%, its highest level since October 2021.

Also, the household survey, which the BLS uses to calculate the unemployment rate, told a different story, showing a plunge of 588,000 workers. Those holding part-time jobs but wanting full-time positions swelled to 4.9 million, an increase of 460,000.

The BLS report tracks a tumultuous month for markets and the economy.

Stocks have gyrated on a daily basis since Trump has taken office, with movements depending largely on tariff news that has changed rapidly. At the same time, Musk’s efforts through DOGE have been reflected in surveys showing high levels of worker angst.

The February numbers, though, show that the labor market is stable. The December jobs count was revised up to 323,000, an increase of 16,000, while the new January figure represents a decline of 18,000 from the previous estimate.

Read the full article HERE.

Bank stocks and the Russell 2000 have slumped on growth concerns, while Treasurys and gold have rallied

Wall Street is having another growth scare.

Investors entered 2025 optimistic that an already strong U.S. economy could get an extra boost from an administration pushing market-friendly tax cuts and regulatory rollbacks. Instead, trade tensions and signs of slowing growth have driven major indexes lower in recent weeks. 

The declines accelerated this week as Trump imposed 25% tariffs on the U.S.’s major trading partners—forcing investors to rethink how serious he is about pursuing a broadly protectionist agenda. 

Losses have been particularly acute in sectors that investors view as sensitive to a slowdown, such as banks and smaller companies. The tech-heavy Nasdaq Composite has fallen 7.5% since mid-February. Oil prices have slipped. Havens including gold and U.S. Treasurys, meanwhile, have rallied.

“I think a lot of people were just assuming that tariffs was just a bluff, and now there’s more uncertainty around that,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. 

The moves show investors struggling to gauge if the conditions underpinning two straight years of near-25% stock gains have deteriorated significantly. While few analysts thought stocks could do quite that well this year, most still thought that they could keep marching higher.

Many remain confident that this latest bout of economic jitters will prove no worse than others that have popped up in recent years. The present threat strikes some as less alarming because it is driven by government policies that Trump could reverse in a moment, as he has done in the past. Stocks retraced a portion of their weekly declines Wednesday after the White House said that automakers would get a one-month exemption from the new tariffs on Canadian and Mexican imports.

Still, concerns had been building on Wall Street since the inauguration, as the new administration moved much more aggressively than expected both in pushing tariffs and laying off government workers. 

So far, the worst economic reports have been largely confined to so-called soft data, such as confidence surveys.

The Conference Board’s consumer-confidence index, for example, posted its largest monthly decline in February since 2021. A survey of manufacturers, released Monday, pointed to a steep decline in new orders, along with a jump in input costs. 

The survey quoted several respondents flagging tariff concerns. “The incoming tariffs are causing our products to increase in price…Inflationary pressures are a concern,” one said.

The closely followed GDPNow tracker, published by the Atlanta Fed, currently suggests that first-quarter growth is running at a minus 2.8% annualized pace—although other models still show growth. 

According to most economists, a sharp increase in tariffs should slow economic activity as businesses are forced to pay more for imports and then pass on those costs to consumers.

Most economists haven’t expected that higher tariffs would go so far as to drive the economy into a contraction. In a recent report, economists at Goldman Sachs predicted that tariffs would subtract just 0.2% from U.S. growth this year—a much smaller hit than what other countries like Canada could experience. 

As of Wednesday’s close, the S&P 500 was down about 5% from its last record high reached on Feb. 19, having dropped 1.9% this week. The Russell 2000 index of smaller companies is off 9.4% since late January.

Bank stocks have been among the biggest decliners. Goldman Sachs has lost 12% since hitting a record on Feb. 18. The consumer-staples sector has generally outperformed others, with Procter & Gamble—the maker of essentials such as Tide detergent and Crest toothpaste—rising 0.4% this week.

Anxieties have extended well beyond Wall Street. Thomas Cooper, a 34-year-old in Wooster, Ohio, who runs service and advertising businesses and trades daily, said he has bought more gold since Trump’s election to protect himself from volatility. 

“The market is just turning against you very quickly, out of nowhere,” he said.

One bright spot for investors has been the rally in bonds, which had been battered in recent years by sticky inflation. As of Tuesday, the widely tracked Bloomberg U.S. Aggregate Bond Index had returned 2.7% this year, including price gains and interest payments.

Some analysts, though, caution that further gains could be more challenging. Inflation remains above the Federal Reserve’s 2% target, making the central bank reluctant to cut rates much more than it already has. Expectations for lower rates tend to boost demand for existing bonds, as investors try to lock in higher yields while they still can.

Brian Jacobsen, chief economist at Annex Wealth Management, is among those skeptical that bonds can keep rallying. 

Jacbosen said that he still believes that Trump will use tariffs mostly as a negotiating tool but that the president clearly intends to drive a harder bargain than he had previously anticipated.

“I thought the negotiation would have taken place before the implementation,” he said. “Apparently, he would rather do: implement first, negotiate later.”

Read the full article HERE.

Financial markets are signaling that the risk of a recession is growing as tariff-related uncertainty and indicators of economic weakness spread fear across Wall Street.

A model from JPMorgan Chase & Co. shows that the market-implied probability of an economic downturn has climbed to 31% on Tuesday, from 17% at the end of November. Key indicators like five-year Treasuries and base metals are showing an even higher — toss-up — chance of a contraction. While it’s far from the base case, a similar model from Goldman Sachs Group Inc. also suggests recession risk is edging up, at 23% from 14% in January.

After a wild ride in markets Tuesday, economic sentiment is darkening as money managers and corporate executives struggle to cope with the volatility created by President Donald Trump’s threatened tariffs. Trump defended his plan to remake the global trading order in his address to Congress Tuesday night, acknowledging the prospect of discomfort ahead.

“With softer economic activity data in the US and already weaker business and consumer confidence in recent weeks, the tariffs that came into effect on March 4th on Canada, Mexico and China are raising the risk of an even bigger hit to business and consumer confidence going forward,” said JPMorgan strategist Nikolaos Panigirtzoglou. “In turn this raises the specter of a US recession and markets have naturally priced in higher probability.”

S&P 500 futures struggled to hold onto to gains in Wednesday trading, even after US Commerce Secretary Howard Lutnick hinted at tariff relief for Mexico and Canada.

Data this week showed US factory activity last month edging closer to stagnation as orders and employment contracted. This came after reports showing consumer confidence hitting the lowest levels since 2021, personal spending unexpectedly decreasing, and disappointing prints about the American housing market.

Mohamed A. El-Erian, the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist, now sees a 25% to 30% chance of a recession, up from 10% at the beginning of the year. El-Erian is among a small but growing group of Wall Street worrywarts, focused on stubborn inflation pressures and the recent decline in consumer and business confidence.

JPMorgan calculates the prospect of a recession by comparing the pre-recession peaks of various classes and their troughs during an economic contraction. By this metric, the prices of five-year Treasuries, base metals and small stocks now suggest a recession probability of about 50%. Still, the investment-grade credit market suggests the chance remains low at 8%, though that’s higher than effectively zero at the end of November.

The Goldman model is based on multiple cross-asset indicators, including credit spreads and the Cboe Volatility Index. One metric, tracking expectations in the futures market on the Fed’s benchmark rate in 12 months time, suggests a 46% likelihood of an economic contraction.

“The largest shifts have been in the pricing of Fed cuts and the yield curve, which tends to indicate latent recession risk,” said Christian Mueller-Glissmann, head of asset allocation research for Goldman Sachs said in an email. “There has also been a pick-up in the VIX, which tends to spike around recessions and is more of a coincident indicator.”

To be clear, financial markets have struggled to price in the direction of the business cycle since the disruption caused by the pandemic. Recession bets in markets misfired in 2023 after the US consumer proved more resilient than expected to monetary tightening. This time round, stagflation fears are rising amid signs of easing growth and elevated inflation. The latest survey of economists conducted by Bloomberg shows a 25% probability of a contraction in the next year.

While US stocks have erased their gains for the year, there are plenty of bright spots in the investment and consumption cycle, not least the unemployment rate hovering around 4% and income metrics showing strength. Additionally, a lot of bad economic news has come from reports based on surveys, according to Cayla Seder, a macro multi-asset strategist at State Street Global Markets.

“It would be premature to extrapolate the soft data-weakness into meaning economic growth is rolling over, as of now,” said Seder. Still, “drivers of economic growth have become more concentrated, which means there are fewer drivers of economic growth,” she added.

Read the full article HERE.

Berkshire Hathaway’s  legendary CEO Warren Buffett says that tariffs are an “act of war” that could further worsen inflation. After a blitz of information in recent weeks, it seems that the market agrees, with stocks falling again on Monday.

After the election, pundits were awash in reasons investors shouldn’t worry that President Donald Trump meant what he said. They argued instead that his administration would be marked only by growth-spurring initiatives such as regulatory rollbacks and that it would not be hamstrung by things such as trade wars. Now that it’s clear that that’s not the case with key parts of his agenda—such as tariffs—the market is back to the level it was at in early November, erasing its post-election gains.

Confirmation that the U.S. will impose 25% tariffs on Canada and Mexico on Tuesday sank the market. The Dow Jones Industrial Average fell 1.5%, the S&P 500DJIA-1.41% slid 1.8%, and the Nasdaq Composite crumpled 2.6%.

“From my lens, the Trump honeymoon period with the markets is over,” writes Rosenberg Research’s Dave Rosenberg, noting that only 8% of S&P 500 stocks are at new 52-week highs, far below the 25% that were at that peak in early November. “The major averages have now done nothing since Election Day, which is a far cry from the powerful and ongoing risk-on response at this same stage in Trump 1.0….The U.S. economy, instead of speeding up, is slowing down.”

This might not be surprising to anyone who remembers far back into the mists of time, to the year of 2018, when tariff uncertainty was a leading cause of the S&P 500’s decline during Trump’s first administration. More recently, Barron’s warned in December that stocks might struggle after Inauguration Day, when hopes met reality. It appears that the market is just coming to grips with the latter after the S&P 500 recorded a painful February.

“The apparently measured start to Trump 2.0 tariff diplomacy featuring easy wins, delayed implementation and a soft approach on China fuelled investor complacency that there would be negotiated settlements in place of the aggressive tariffs threatened during the election campaign,” notes TS Lombard’s Jon Harrison. “Last week’s, at times chaotic, tariff and trade related news flow marked an end to complacency.”

The White House’s decision to impose an additional 10% tariff on China and move forward with 25% tariffs on Mexico and Canada fully deflated hopes that there wouldn’t be much trade disruption, and it forces the market to take other levies, such as the 25% threatened against the European Union, more seriously.

Nor does it seem like there is an easy path toward concessions, particularly when it comes to China, given that Trump has also told the Committee on Foreign Investment in the United States to thoroughly scrutinize Chinese investments in certain sectors. “Other measures announced could reopen previously settled issues including adherence to accounting standards and stronger enforcement of rules on US listings for Chinese companies,” writes Harrison. “China has said it will retaliate against both these measures as well as to the tariffs.”

The upshot is that markets will have to live with the seesaw of trade talks for the foreseeable future, even as other data shake confidence in the economy.

“Continuous negotiations on Trade War 2.0 and the uncertainty alone are headwinds to the S&P 500,” argues Evercore ISI’s Julian Emanuel. So called soft-data points, such as consumer confidence, are flashing yellow as shoppers pull back in the face of persistent inflation and mass government layoffs, threatening economic growth. Meanwhile, last week’s increase in jobless claims was the “first crack in the ‘hard data’ ” about the economy’s health, Emanuel notes.

In short, factors are aligning at the worst time.

“Trade policy that creates a consumer demand shock—assuming the current threats are implemented—at a time when US economic growth is already slowing increases the odds of a negative feedback loop developing in the economy,” writes 22V Research’s Dennis DeBusschere.

Still, investors don’t necessarily need to give up on U.S. stocks entirely. Yes, it appears that volatility will remain the name of the game as long as tariff uncertainty remains, but while the S&P 500 might have further to fall in the coming months, Evercore’s Emanuel believes that it can still end the year higher, to the tune of 6,800. Barron’s, too, thinks that ultimately it will be an up year for the index.

DataTrek’s Nicholas Colas thinks it’s wise to take the longer view, too, even as he sees more choppiness to come. “[I]t is important to remember that ‘American exceptionalism’ with respect to equity price performance is a relative/longer run concept and does not assure the S&P 500 will beat all comers over any given quarter,” he writes. “Given the combination of lofty expectations and manifold policy uncertainty, US stocks are holding up remarkably well.”

That may be the case, although to borrow Buffett’s analogy, that doesn’t mean they won’t take a beating and further retrench before recovering. War—what is it good for?

Read the full article HERE

Monday’s action is looking positive, but the week could be a tough one for markets as the main event — Friday’s jobs data — looms. That’s as Wall Street has been increasingly scrutinizing the U.S. economy and the new administration’s ability to keep the stock market from coming unglued.

Within that scrutiny is our call of the day from strategists at JPMorgan, who worry investors aren’t giving enough thought to potential economic turbulence this year.

“The risk is of a broadening air pocket in activity, where more aggressive trade, immigration and fiscal consolidation policies could increase uncertainty, and ultimately affect payrolls,” said a team led by Mislav Matejka, head of global and European strategy, in a note to clients.

He and his team rattled off an ever-growing list of economic data they see as starting to wobble – consumer confidence, retail sales, and services purchasing managers surveys. In addition, they also noted a weak performance of cyclical stocks – shares of companies that tend to rise when the economy is booming and vice versa – versus defense stocks, alongside lower bond yields.

At the same time, hottish consumer prices are expected to keep the Fed on the sidelines over interest rates, though that could change, they said.

“Ultimately, the activity air pocket could lead to more forceful Fed support, drive the re-steepening of the yield curve and bullish equity market behavior, likely in the [second half] but not in the first instance,” the strategists said.

The strategists doubled down on their view that “there are clear differences to the 2017 reflation template,” referring to eight years ago when global stocks rallied on hopes that fiscal stimulus under Trump 1.0 would drive economic growth. The consolidation seen by the S&P 500 this time around has been caused for one, by uncertainty over how policy changes might play out, they said. 

“It is premature to believe that tariffs uncertainty has already peaked, and interestingly, even if not much sticks, the adverse impact on sentiment could still be the end result,” JPMorgan strategists warned.

So where to invest right now? They say in the interim, before any Fed support can be seen, defensive stocks should keep performing well.

JPMorgan has a neutral position on U.S. stocks overall, as its strategists continue to worry about a heavily concentrated market with high valuations. At 22 times, they view the U.S. forward price/earnings ratio as looking “very stretched,” though they note valuation discounts seen earlier for China and eurozone equities has largely closed. 

“Having said that, we do think U.S. activity will be stronger than the rest, and the U.S. market will likely benefit from animal spirits and deregulation,” said the strategists.

If trade uncertainty does escalate, that will likely be “less of a headwind for the U.S. If markets weaken, the U.S. typically held up better than other regions during risk-off periods.”

One trend likely to continue for U.S. markets, said Matejka and his team, is the rotation out of big U.S. technology and growth companies. Last summer, the bank closed out a bullish position on the growth theme and suggested a rotation from semiconductors to software.

The markets

U.S. stocks are higher in early action, led by tech with Treasury yields rising and the dollar getting battered, as gold surges.

The buzz

European defense stocks like Rheinmetall following a fractious meeting between President Trump and Ukraine President Volodymyr Zelensky. Bitcoin and other cryptos including Ripple’s XRP after a surge in prices on Sunday after Trump gave details of a strategic reserve. Shares of related stocks, MicroStrategy and Coinbase are flying.

Tesla stock is up over 3%. Chief Executive Elon Musk wrote over the weekend on X that he believes a 1,000% profit gain for the EV maker over five years is possible.

Blue Ghost has become the second private spacecraft to ever land on the moon. Space-related stocks like AST SpaceMobile and Rocket Lab are climbing.

The Institute for Supply Management’s manufacturing survey is due at 10 a.m., alongside construction spending.

The Trump administration reportedly is considering exclude government spending from gross GDP reports, which could ultimately distort the picture of the economy’s health.

Read the full article HERE.

The euphoric postelection trade that swept across financial markets has turned into an uncertainty trade. What looked like a robust Trump trade in several asset classes may have fizzled until there is more clarity on policy and the economy.

The dollar, crypto, and bond yields are all off their highs after rallying into the beginning of the year on the promise of better growth. The S&P 500 +0.47% fell 4.6% from Feb. 19 through Thursday’s close. Small-caps are lagging, momentum names are sliding, tech is in decline, and defensive stocks like consumer staples and healthcare have been the best performers.

President Donald Trump said Thursday he planned to go ahead—again—with tariffs on China, Canada, and Mexico. Stocks sold off and the 10-year Treasury yield +0.32% traded just below 4.3%. Trump said tariffs of 25% would go into effect March 4 for Mexico and Canada and China would face additional tariffs of 10%.

“I think it’s a risk-off mood, which is what you would expect when there’s a growth scare,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “At first blush, people thought the tariffs were going to be inflationary, but now as they drag on, and people have more time to think about it, they’re more concerned about the slowing-down impact.”

The 10-year yield peaked at 4.8% Jan. 13 as investors worried that some Trump administration policies that would be positive for the economy would also saddle the country with more debt. The DXY dollar index DXY +0.07% hit a 52-week high on Jan. 10 and has since fallen 2%.

Optimism isn’t dead. But now markets reflect a wait-and-see posture by investors. Many are waiting to see how tariffs could impact corporate profits.

Rick Rieder, BlackRock’s global chief investment officer of fixed income, said he believes the stock market could finish the year up more than 10%. “I still think the economy is in good shape,” he said. “But I think scaling back a little of what looked like ‘off-to-the-races’ growth I think makes sense,” he said.

The trajectory of stock, bond, and currency markets are linked. The 10-year yield, before it turned lower, had neared the 5% level where stock market analysts worried it would slow stock market gains. The dollar, when on a rising trajectory, threatened to dampen corporate profits.

Treasury Secretary Scott Bessent said on Feb. 6 he is focused on keeping the 10-year yield low. That was an important signal to global investors, who keep a close eye on the 10-year Treasury yield. It affects home mortgages and many other loans.

The 10-year yield’s rise earlier in the year in part reflected the expectations that Trump’s tariff policy could be inflationary, said Ian Lyngen, BMO Capital Markets head of U.S. rate strategy. Trump campaigned on maximalist tariffs. Since taking office, he has shown a willingness to negotiate some tariffs, while others have yet to materialize. That lower yields. Yields move opposite bond prices.

But investors are still looking for clarity.

“I think the market is responding to the increase in uncertainty, and the fact of the matter is we don’t have enough information because the decisions are being made and then unmade,” said Lyngen.

Softness in other economic data has helped push yields lower.

“There are growing concerns about the direction of the employment market and therefore the broader real economy,” said Lyngen. One worrisome data point was the seven-point decline in February consumer confidence, the index’s biggest monthly decline since August 2021.

Walmart raised questions about the strength of the consumer last week when it disclosed 2026 fiscal year revenue and profit targets that were lower than Wall Street expectations.

BlackRock’s Rieder said he believes the consumer is still in good shape, and the economy is being driven by the higher end consumer.

Stocks should go higher because companies have strong balance sheets, Rieder said. “You’ve got more than a third of the market that throws off an average [return on equity] of more than 33% and buys back a huge amount of their stock,” he said.

He also said the 10-year yield could challenge 5% again, depending on the course of inflation but that it should mostly stay in a range below that level and not get much above it, but it should stay in a range.

U.S. government debt is near 100% of gross domestic product. That outsize balance is Rieder’s biggest concern, but he is encouraged by the Trump administration’s focus on the issue. Bessent recently said he would not immediately extend the term of government debt, as some of his past statements suggested he might. Rieder took that as a positive.

“The sensitivity to it [debt duration] is a big deal. Quite frankly I think the pragmatic nature is we don’t have to extend the term of the debt today until we bring inflation down and people are comfortable spending is coming down. That makes a lot of sense,” Rieder said.

“I also think the ability to create some deregulation of the financial industry to create places to hold more of the debt is a big deal. I think [Bessent’s] focus there is important,” he said.

The efforts by Elon Musk and his Department of Government Efficiency has sent a strong signal that the Trump administration is trying to curb spending by reducing head count and costs. But its aggressive strategy has drawn lawsuits and political opposition. How those public-sector cuts will affect the private employment market is also unclear.

Even with uncertainty, many strategists are betting the animal spirits from Trump’s policies will keep stocks rising this year. But to do so, the administration will need to balance its actions against the real impact they could have on inflation, confidence, and employment.

Read the full article HERE.

The precious metal has more than doubled the S&P 500’s return. Is silver next?

Gold’s stellar run is too shiny to ignore—and its rally could continue through 2025.

The precious metal is certainly having a moment. On Feb. 24, President Donald Trump said he was worried that someone might have stolen gold from Fort Knox, the U.S. depository in Kentucky. Worries that he might place tariffs on gold have created a flurry of activity as bars in London, where the Bank of England is home to the world’s second-biggest stockpile, have been transported to New York, where the Federal Reserve has the largest reserves. There’s even speculation that the U.S. could revalue its gold holdings to give the Treasury $750 billion more to play with.

All told, gold futures have reached $2925.10 an ounce, returning 42% over the past 12 months, more than double the S&P 500 indexSPX+0.19%’s 19% return, including reinvested dividends.

That’s not bad for a commodity that has little practical use and doesn’t produce earnings or pay interest to those that hold it. What’s more, the reasons offered for gold’s rally are often contradictory and don’t seem to hold up when investigated. It’s considered a defensive asset, but has been rising along with the stock market and as the economy chugs along. The precious metal, which is priced in dollars, should move in the opposite direction of the greenback +0.70%, but it has bucked that rule as well. Gold is often thought of as an inflation hedge, but its big gain has coincided with a deceleration of price increases.

Yet just because everything we thought we knew about gold is wrong, it doesn’t mean investors should be rushing to unload the metal. “It’s just a pet rock, but I’m not selling it,” says David Jane, a portfolio manager of Premier Miton in London, who has about 5% of the $1 billion he manages allocated to gold. “You can’t pin down its price. I’m not going to cut and run.”

Historically, gold has been considered a store of value—and for good reason. There’s a limited supply—all of the gold in the world could be melted into a cube measuring 25 yards on each side, roughly the volume of one floor of an office building—and miners are only able to increase it by 1%-2% a year despite their best efforts, according to the World Gold Council. If supply is relatively fixed, then changes in price are all about demand.

And demand has picked up. Central banks across the world have been consistently increasing gold purchases as a way to diversify their reserves. De-dollarization isn’t new, but has taken on considerable urgency after the U.S. froze Russia’s assets in the wake of its invasion of Ukraine. Central bank purchases exceeded 1,000 tons for a third year in a row in 2024, according to the World Gold Council. China and India in particular have been snapping up gold for the past few years.

Central banks can’t entirely ignore the prices they pay for gold, but as the value of their holdings rise, it means they feel more comfortable stepping in to buy more, says Philip Newman, a founding partner of the Metals Focus consultancy, especially when prices decline. “[Gold] has a floor level of support that is strong and rising,” he explains.

There’s a decent level of retail demand for gold the world over; spending on jewelry rose 9% last year, according to the World Gold Council. China has even encouraged insurance funds to stock up on the metal, and even ordinary households in the world’s second-biggest economy may be looking to gold after the nation’s specular property crash during the Covid-19 pandemic. Others may be rushing to buy it simply because of the uncertainty created by Trump’s shake-up of the world order could be helping gold, even if stocks and the economy are booming, too.

“Gold plays well when there are tensions in the world,” says Krishan Gopaul, an analyst at the World Gold Council.

Other factors may also be contributing to the sharp rise in gold prices. The anticipation that the U.S. will levy taxes on gold imports in the near future pushed up the cost of physically delivering gold, which in turn pushed up prices for borrowing it. This created a kind of “short squeeze” in which anyone who had bet on gold prices falling suddenly had to reverse their positions, driving prices even higher, according to Gavekal Research. “This means that the fundamentals of the gold bull market are still strong and the technicals are rock solid,” Gavekal’s Louis-Vincent Gave writes.

Gold may also be benefiting from people having too much money to put to work, says Premier Miton’s Jane, creating momentum that just won’t quit. “The positive correlation between gold and equities suggests to me that it’s excess liquidity around that world that’s getting sucked into gold, just like it’s going into large-cap U.S. stocks and anything else that looks like fun at the moment,” Jane says. “This is speculation, not fear.”

The momentum should continue. While $3,000 could be an important psychological level, many analysts see the metal moving even higher. In February, Goldman Sachs and UBS raised their forecasts for 2025 to $3,100 and $3,200, respectively, while Bank of America’s Michael Widmer says gold could hit $3,500 an ounce if investment demand increases by 10%. “That’s a lot, but not impossible,” he writes. Worldwide, gold-backed exchange-traded funds attracted $3 billion in January, driven by demand from Europe, according to the World Gold Council, compared with net outflows a year earlier.

Buying gold can be very simple—as easy as heading to your local Costco or Walmart and buying a bar or coin. Those slices of gold are more souvenirs than serious investments, however, and selling them could be difficult. A better option could be to buy into a gold exchange-traded fund such as the $85 billion SPDR Gold SharesGLD-1.39% ETF, which has an expense ratio of 0.4%, or the $38 billion iShares Gold Trust, which charges 0.25%.

Mining stocks are another way in. Even though their earnings should increase more or less in line with higher gold prices, their share prices have lagged behind the metal itself over the past three years. That means they could be due for some catch-up. The $14 billion VanEck Gold Miners ETF, which owns big global miners Newmont and Barrick Gold and has an expense ratio of 0.51%, has returned 19% this year, including reinvested dividends, compared with 11% for the SPDR Gold ETF, while the $5 billion VanEck Junior Gold Miners ETF, which charges 0.52%, has returned 17%.

Among individual miners, Gold Fields, which operates in Australia, Ghana, Peru, and South Africa, is up 44% this year and could be poised to break out of a 30-year trading range, according to the Institutional View’s Andrew Addison. “Don’t want to miss this, because GFI boasts the biggest base of any gold stock,” he writes, while recommending that investors buy shares on pullbacks to $18 from a recent $19, in anticipation of a move above $20.

For those concerned that gold could lose momentum after its rally, silver might be the way to go. The two metals often trade similarly to each other, even though silver has more industrial uses than gold. But that extra use case is what has been keeping silver down, due to a slump in demand from the slowdown in Chinese manufacturing. Silver futures are up just 6.8% this year, compared with gold’s 10% rise, and could have more room to run if investors start getting more comfortable with the economy. Investors could consider the $14 billion iShares Silver Trust, which has an expense ratio of 0.5%.

“Investors aren’t focused on silver,” says Newman at Metals Focus. “But If gold gets to $3,000, you could see some switching.”

For now, though, gold is as good as, well, gold.

Read the full story HERE.

Discretionary spending represents only 16% of the federal budget. We can’t avoid entitlement reform.

Government debt has exceeded $36 trillion and continues mounting, with no end in sight. This is unsustainable absent dramatic changes in how we allocate our tax dollars.

Budget hawks have been rare in Washington since 2010, when the bipartisan Simpson-Bowles commission put forth a comprehensive plan to reduce spending and increase revenue, only to see it sink. Today, the problem is dire. Our ratio of federal debt held by the public to gross domestic product has grown from 61% in 2010 to 100% this fiscal year. Left uncorrected for another four years, we will surpass the historic high of 106% that America hit at the end of World War II.

It’s little wonder that more Republicans and Democrats are voicing concerns that American global power—backed by economic strength—is threatened by growing budget deficits. It’s time lawmakers seek solutions rather than argue about who’s to blame.

Several factors drive deficit spending, including an aging population and rapidly rising medical costs. But the major reason is reckless spending.

President Trump deserves credit for trying to make the federal bureaucracy more efficient to reduce deficits. His decision to create the Department of Government Efficiency put a much-needed brake on wasteful government spending.

We caution the president, however, against relying on tariffs to raise revenues. Tariffs engender ill will among allies and other trading partners and allow China to seize a greater global role. Further, tariffs risk domestic inflation by raising the costs of goods. As the president will remember, high prices caused political problems for Democrats last fall.

But there are many steps the administration and lawmakers can take. The nondefense discretionary spending that DOGE has focused on is only 16% of the federal budget. If DOGE reaches its goal of reducing spending by $500 billion, the budget deficit for the year will be reduced by about 26%. That’s a good start. But our leaders must also develop plans to control spending on entitlement programs, because those will be the primary source for our deficits in the coming decades.

America can’t achieve a sustainable budget without reforming Social Security, Medicare and other healthcare benefits. Together, these accounted for 49% of federal spending last year, and the share is growing over time.

Meanwhile, these programs are hurtling toward insolvency. Social Security is projected to be insolvent by 2034. Unless Congress and the White House enact reforms by then, there will be a 23% reduction in benefits. Similarly, Medicare Part A is projected to exhaust its trust fund by 2036, requiring an 11% cut in benefits.

In 1983, when one of us (Mr. Baker) helped President Ronald Reagan push through the last major Social Security reform, the program was three months away from insolvency. The final vote in Congress came two years after a commission, led by Alan Greenspan, began working for a bipartisan solution.

Then, as now, acting sooner rather than later would have reduced the cost of a solution. Acting now would require spending cuts equal to 2% of GDP, while waiting until 2033 would require 40% more in cuts. That’s a significant difference.

We’re about two presidential terms away from the Social Security and Medicare trust fund exhaustion dates. Fortunately, that’s plenty of time to identify solutions that can attract bipartisan support. Republicans and Democrats must work together to form bipartisan commissions to begin studying solutions.

Given the current political climate in Washington, it would be wise for such commissions to keep their thoughts as confidential as possible until the time comes to release a final set of recommendations. The reasoning for doing so is straightforward: Political foes are quick to use any mention of a potential solution as an immediate campaign slogan.

If America fails to act, debts will grow as deficits add up and interest payments balloon to unprecedented levels. Inflation will surge again. Such an outcome will reduce the nation’s economic vitality, impose a hardship on the least-affluent Americans most affected by inflation, and strip the U.S. of the flexibility needed to respond to economic crises and existential foreign policy challenges.

Read the full article HERE.