Correlations

In this first presentation of 2025, we start with an overview of the 2025 outlook webcast polls, and a brief post-mortem of the 2024 market performance. Then, we shift gears and examine what is behind the recent surge in bond yields and its implications for equities. We also review market technicals and positioning and conclude with a list of trades to prepare our portfolio for continued moves in yields.

This week, we cover the main questions we fielded during our latest client trip in Europe. Among the many topics broached are Europe’s recession odds, the impact of China’s stimulus, and the outlook for European markets.

As we head into a more turbulent macroeconomic and geopolitical period, investors should favor countries with newly elected government, small government size, and ample room to cut policy rate. Ideally, they should also be in a stable region, and not so dependent on the US or China. Hence, we are introducing the Global Political Capital Index as a way to integrate these factors into a score that can help narrow down the countries with the best and worst abilities to deal with the incoming challenges.