MacroResearchBoard

The Facts Changed: Time To De-Risk – March 10, 2025

A just-published report updated our multi-asset portfolio recommendations in view of the now-live U.S. trade war. While the ultimate end-point of trade tariffs is unknowable, the economic downside risks have increased, including in the U.S.

The U.S. and global economy have a good starting point, but tariffs are a self-inflicted stagflationary wound and a risk-off climate will persist at least until the unfolding trade war eases materially. Consequently, the threat to economic and earnings growth warrants tactically downgrading equities to underweight (from neutral) and upgrading bonds to neutral (from underweight) in a multi-asset portfolio.

Meanwhile, the U.S. exceptionalism theme will continue to unwind, and U.S. equities and the dollar are not yet priced for downside growth risks. There has been a marked divergence between the U.S. and European/Japanese bond yields, but overall DM government bond value is unappealing given sticky inflation. Still, bonds will be supported in the risk-off climate that will prevail until U.S. policy uncertainty recedes.

Favor euro area, Japanese and EM markets within a global equity portfolio, while underweighting the still-expensive U.S. market. Expansionary fiscal policy proposals in Germany and Europe will sustain the outperformance of euro area stocks in particular.