March 2025

In Section I, Doug notes that the chaos of the new administration, including bellicose tariff threats and DOGE’s abrasive and indiscriminate approach, are sowing uncertainty and fortifying economic headwinds. Lowered guidance of prominent retailers, alongside weakening services PMIs, bode poorly for economic activity considering that improving manufacturing PMIs likely reflect tariff frontrunning. A recession remains our base case, suggesting that investors should be underweight stocks within multi-asset portfolios. In Section II, Jonathan presents a checklist that investors can use to confirm whether AI’s purported productivity gains are real. The checklist does not currently suggest that artificial intelligence is meaningfully boosting productivity growth. US equity valuation reflects very significant optimism about AI, underscoring the profound risk facing equity investors if the narrative about AI shifts in a pessimistic direction.