Labor Market
- Congress will pass tax cuts by end of 2025 producing a fiscal thrust of about 0.9% of GDP in 2026.
- Trump will count on that stimulus as a basis for slapping tariffs on leading trade partners.
- China will retaliate against Trump and stimulate its domestic economy, while pursuing stronger trade ties with other countries. Europe will also retaliate.
- Geopolitical risk will shift from Ukraine-Russia to Israel-Iran, where the conflict will continue to escalate until a crisis point is reached within 2025.
Investors have given up on European assets, which now suffer exceptional discounts to US ones. However, tighter US fiscal policy, the end of Europe’s austerity and deleveraging, the LNG Tsunami about to hit European shores, and the global capex fueled by the Impossible Geopolitical Trinity mean that Europe’s time to shine will soon come back.
Investors have given up on European assets, which now suffer exceptional discounts to US ones. However, tighter US fiscal policy, the end of Europe’s austerity and deleveraging, the LNG Tsunami about to hit European shores, and the global capex fueled by the Impossible Geopolitical Trinity mean that Europe’s time to shine will soon come back.
The post-COVID recovery has been one of excesses. Government deficits have ballooned, tight labor markets have led to a windfall of consumer spending, and equity valuations have soared on the back of lofty growth expectations. But these excesses will no longer be sustainable in 2025. Our theme for next year is Thin Is Back In. Government budgets, economic growth, and equity valuations will be leaner than investors expect. We discuss this the reasoning behind this macro view and the asset allocation implications that follow from it.
