What’s on our radar of stock market, economic conditions, and market insights.
As we delve into current trends in asset pricing, one must consider various themes that influence market behaviors and economic indicators. As we assess this date, it’s essential to reflect on historical market data and compare it to the present to gain insights into potential future trends.
While tariff news have taken the headlines in the recent month, a few fundamental drivers have been lurking beneath the economic machine and are worth our attention. Overall it is getting close to a late cycle regime and asset markets have been pricing accordingly.
Market Condition Dashboard
- Economic Uncertainty: Left chart above showing an index of global (GDP weighted) economic uncertainty using NLP techniques, which stays at elevated level even after some de-escalation of tariffs conflict. Investment and big ticket consumption decisions are likely to be negatively impacted in the near term. Simply put, the elevated uncertainty requires some risk premium in the market. In addition, front running of tariffs have pulled demand forward and 2025H2 GDP growths across developed countries have remained subdued. <Read More>
- Update 07/03/25: The Big Beautiful Act at the center of the economic policy for the rest of 2025. Reduction in tax and increase in budget has been received Ok by the market so far. Deregulation for financial sector will benefit share prices in H2.
- Geopolitical risk: while tariff risks are related to geopolitical risk, they do not entirely share the same dynamics. A withdraw of US impact is a more profound and longer term risk to global asset prices. The ongoing wars are de-escalating as well.
- Update 07/03/25: The Big Beautiful Act at the center of the economic policy for the rest of 2025. Reduction in tax and increase in budget has been received Ok by the market so far. Deregulation for financial sector will benefit share prices in H2.
- Valuation: equity market valuation is still rich but not stretched, on standalone basis or relative to treasury yield. The recent drawdown and subsequent recovery is comparable to the 2021-2022 inflation spike episode but so far these moves are reflecting valuation compression and earnings so far remains strong.
- Tariffs impact: Even at 10% universal tariffs, the effective tariff rate(weighted by value of imports) for the US is about 20% compared to less than 5% over the past decade. So material impact to inflation and corporate margins are still at risk. But so far we have not seen the pass-through to US inflation. Read more about tariffs <here>.
- Update 05/03/25: As tariff talks resumes between US and China, which is viewed as the hardest negotiation to be done. Market sentiment has priced in a truce of the trade war, but the outcome could surprise to the downside.
- Update 07/03/25: TACO (Trump Always Chicken Out) trades have been the playbook for the year. Deadlines are likely to get extended as more reasonable negotiation results are expected. We are lowering the actual inflation impact and focus on growth impact.
- US exceptionalism: global investors have been fading the idea of US exceptionalism manifested on currency, treasury and stock market. With long term international investors being the marginal seller, risks of higher yield in treasury market, and lower dollar is to the upside.
- Inflation volatility: what the market may be under appreciating is that the fragile supply chain and potential trade diversion resulting from near-shoring or friend-shoring can create a lot of short term price spikes here and there. One can expect inflation to have more up and downs from time to time. It may be tricky to find direct hedge for this other than rates vol products.
More investment tips from our knowledge base:
Additional macro blog resources: