Here’s an update to the 10 Charts to Watch in 2025 as we head into quarter-end.
In the original article from earlier this year I shared what I thought would be the 10 most important charts to watch for global multi-asset investors in the year ahead (and beyond).
In this article, I have updated those 10 charts + provided fresh comments.
[Note: I have included the original comments from back at the start of the year, so you can quickly compare what I’m thinking now vs what I said back then]
1. Recession or Resurgence?
This remains a critical and, for now, unsolved mystery. I’d hazard that maybe the answer is both: the US economy has been hit with a wall of uncertainty (tariff talk, geopolitics, stock market volatility, constant news flow; policy uncertainty fatigue) and fiscal contraction as DOGE weeds out wasteful spending —recession is a real possibility.
Meanwhile, elsewhere in the world Japan has broken out of economic stagnation, and Europe + China are turning up from a slowdown (helped by stimulus) —resurgence is credible for the rest of the world (and yes, you can get a global expansion and US contraction >> set your conventional wisdom aside — we are in an unconventional world now).
“This is really the big macro question for 2025; do the various weak spots spread and combine with (geo)politics + the long and variable lags of monetary tightening + fiscal reforms —to result in full blown recession?
Or does an inventory (restocking) cycle + global monetary easing tailwinds + China stimulus — combine to trigger an economic reacceleration (+inflation resurgence)?
This chart sets the scene on both respects (it represents both current weakness and potential strength), and will play a key part in ongoing real-time monitoring.”
2. The Macro Risk Sandwich
Labor markets remain tight vs. industrial capacity very loose but that looks to be changing; trade wars and real wars might actually even help global trade and manufacturing see a near-term revival and tightening of industrial capacity (not to mention supply chain recalibration as possible reshoring and tariff-effects create regional pockets of tight capacity). On balance that’s likely to mean an inflation resurgence sooner or later.
This chart also puts the “macro-risk-sandwich” of recession vs resurgence on display; this time showing the strength and tight capacity in labor markets [blue line] vs excess capacity and weakness in industry (global trade and manufacturing) [black line].
The open question here is will the blue line catch down (recession) or the black line catch up (resurgence)?
3. Industrial Metals will let us Know
As for the market prognosis, industrial metals are still hanging round the middle of the range; not giving us a clear lead on recession or resurgence yet but arguably with the recent rally in metals there is a slight lean toward (global) resurgence.
“We can try to form a view on whether it’s going to be one or the other or something in between, or we could just watch industrial metals —as they will be the first to know.
Breakout = resurgence. Breakdown = recession.
The battle lines are drawn.”
4. Normal no Longer?
Here’s the thing on this one, the more you cut policy rates without some kind of recession or deflationary crisis/shock coming along, the more you raise the odds of growth reacceleration and inflation resurgence and the more the bond market prices that into the form of higher bond yields. But again, there is nuance here — developed markets ex-US have seen a steady surge in bond yields (vs US lower); that’s consistent with global resurgence + US recession (or at least a US growth scare and asset repricing).
“Policy rates have peaked as central banks pivoted to rate cuts. Bond yields also peaked —initially; but that’s changing. Both lines in this chart are going to be at the mercy of the macro-risk-sandwich (a binary prospect: recession = down, reacceleration + inflation resurgence = up).
For a market hooked on rate cuts, 2025 could present a wake-up call; we may need to be prepared for pauses and “unpivots” instead of just consensus cuts.”
5. No Equity Risk Premium
Even with lower bond yields, the forward-looking prospective equity risk premium is still negative for the USA. As I noted in the , it’s hard to argue for a sustainable rally in US stocks when you have medium/longer-term indicators like this still sounding warning signals (and the prospect of a recession or growth scare looming).
“Speaking of bonds, there will be *no* risk premium for equity investors over-and-above bonds in the coming years (based on ).”
6. No Credit Risk Premium
To pick up on what I said earlier in the year, US assets were () priced for perfection, and I think it’s clear by now that we are in an imperfect world. Sometimes credit spreads being very low represents confidence, other times it represents complacency. I would confidently call this complacent.
“There’s also very little risk-cushion on offer in credit — and Stockmarket are pretty much priced for perfection. Do you believe in perfect? (you better believe if you are all-in on risk assets!)”
7. Defensives Deep Discount a Premium Deal
These guys are performing true-to-label so far, defensives have gained ground in relative performance terms, and still look extremely compelling as a contrarian defensive play.
“But it’s not all gloom and risk, there are some extremely attractive relative value opportunities that have opened up. One is in defensive sectors (albeit, please n.b. the parallels with 2000(!) i.e. contrarian risk flag waving here). Defensives are unloved, underowned, and undervalued.”
8. Ditto the Relative Value Trinity
Likewise, it looks like we have turned the corner on this global equity mega-theme — especially for global vs US stocks. And yes I know a lot of people are talking about it, but for good reason, but that comes after a long period of people really not wanting to know anything about it (used to be you talk about global vs US stocks and you’d be argued out of the building). We are still so early on this one — this theme will be measured in years not months or weeks.
“Bigger picture across ; small caps are cheap vs large caps, value is cheaper than usual vs growth, and global is at record cheap levels vs US. Will 2025 be the year where the elusive turning point is found for a multi-year move here?”
9. Know thy Dollar
It’s looking more and more like the has peaked now (and it would make macro/fundamental sense if the US goes through a bit of a growth/confidence shock and rest of world plods along… ultimately that’s what exchange rates reflect; relative macro strength). And it both reinforces and ties in with the turning point we’ve seen in global vs US stocks.
“One key clue in the global vs US market relative performance debate will be the US dollar. It plays a direct (currency translation effects), and indirect role (as it reflects relative macro strength, and impacts the world through financial conditions effects). We can see this playing out clearly in the chart below; a stronger dollar is consistent with US outperforming vs global.
It’s an important chart because we need to keep track of the USD (being particularly on watch in case of upside breakout, which it is currently in the process of doing!), but also because of the black line and what it means for both global and domestic investors.”
10. US Asset Valuation Exceptionalism
US assets had a Golden Decade-and-a-half following the big reset in valuations in the wake of the financial crisis. 2009 was *the* quintessential generational buying opportunity, meanwhile, now we are sitting at the opposite position (a generationally risky point in time for US assets). OTOH, global assets are still cheap.
It may not correct and mean-revert overnight or in a straight line, but when you see extremes like this in financial market charts it’s really a no-brainer for asset allocators (at least those with the luxury of patience and foresight) — only the most deeply recency-biased non-thinking individuals will argue with this one. The hurdle for US assets to continue to outperform at this point is so high that the risk/reward calculus is simply not worth it. You either need another big reset in valuations or an economic miracle for US assets to repeat anything similar to what they did over the past 16-years. Or you could just go global…
“Last but not least, call it the US Asset Premium — US assets (stocks, US dollar, housing market, credit spreads inverted, and US treasuries valuation inverted) are trading at their combined most expensive level on record. This is well beyond what we saw in 2021, and even handily eclipses the dot com and pre-GFC peaks. Meanwhile, global assets are cheap (DM/EM/FM equities, EMFX, and EM bonds).
The level of US assets by itself is stark, but the spread or premium is even more significant. I’ll tell you what this looks like to me: this is either a generationally risky point in markets, or a generational opportunity and probably both.
Keep this one high on the watch-list!”
Thanks for reading!
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