Our Thinking (not advice)
So far in 2025, stocks have done better than most have expected along with gold and bonds in genera. How much was this based on fundamentals and how much is driven by AI and related/supporting industries and the beginning of a rate cutting cycle (always a positive contributor to risk assets.)
With negation or threats continuing between the U.S. and its two neighbors, Canada and Mexico as well as China, any moment could give rise to another trade related shock. This also means market volatility remains ever present along with implications to earnings and the real economy and consumers.
We expect the economy to slow during this final quarter and a pickup during the first half of next year due to the fiscal stimulus from OBBBA, and thereafter, the economy will likely slow down again. Inflation is expected to move somewhat higher, but this will not be sustained since it is reflecting more a one-time price adjustment. This suggests a price reset upward for imported goods in the next 12 months and thus bumps up the inflation rate. Thereafter, inflation likely will settle down (base effect takes over), but we’ll see a yoyoing effect, which makes the ride a bit uncomfortable. Nonetheless, the voters (especially the lower 50% income group) will feel the most pain for the price adjustments and loss of some entitlement benefits.
The overall global economic picture is improving as uncertainties subside with trade deals finalizing. With more stability, we can all plan forward better.
We continue to advocate for quality and caution in portfolio construction and management:
- Affirm investment objectives and time horizon and make sur the portfolio aligns properly,
- Separate short term (1- to 3-year) assets for liquidity needs from long-term assets (4 years+),
- Upgrade each holding within its asset class to the highest quality where possible,
- Park assets in safe and liquid assets (6 months plus of income) for short-term liquidity needs, without the need to sell long-term assets to raise cash,
- Diversify away from a super concentration in U.S. (home bias) assets and U.S. dollar dominance as well as styles, sectors, and asset classes, including hard assets.
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