Posted:June 7, 2025
Categories: Bond Market, Commentary, Economy, Emerging Markets, Market Update, Markets, Stock Market, Stocks
This month’s edition will be very brief, as I’ve been traveling over the past couple of weeks, visiting friends and family in Iowa. I’m also working on finishing my book and on two longer-form articles: one on the housing market and one on the government bond market. Let’s take a look at the markets.
The figure below shows a snapshot of the major markets on a year-to-date basis. In general, stocks are higher on the year, led by international stocks, both developed and emerging markets. The bond market is positive in most areas, while the US dollar has sold off due to the volatility surrounding the tariffs. Gold and silver remain in bull markets, while oil finds itself hovering around $60 to $65 per barrel.
Figure 1: Market Performance YTD
Source: Trading View
Stocks
I’ve argued in past articles that US Exceptionalism has manifested itself through the performance of the stock market and, in particular, large-cap US stocks. At some point, these companies, while enormously profitable and innovative, can be pushed to very high valuations. At this point, we are seeing some rotation from US stocks to international stocks this year. A lower US dollar also helps drive this rotation. The figures below show US vs. non-US stock valuations. When the blue line rises, international stocks are outperforming. When the blue line falls, US stocks are outperforming. I remain a long-term bull on stocks, both in the US and abroad.
Figure 2: EM and Developed Market Stocks vs. US Stocks
Source: Callum Thomas
Bond Market and Fiscal Dominance
The market is now pricing in fewer and fewer interest rate cuts by the Federal Reserve, which has kept longer-term interest rates high. The 10-year US Treasury bond is currently at 4.5%, which is smack in the middle of the range I expect it to be in the next few years, somewhere between 3% and 6%.
From a fiscal perspective, the “big beautiful bill” appears to exacerbate “fiscal dominance” and will most likely add to debt and deficits. Nothing has passed yet, and more debate is to come. However, I heard one commentator note that for both sides of the aisle to pass a bill with significant cuts, they would have to “link arms and jump off a cliff.” This then reminded me of a quote from Senator Russell Long from July of 1973, where he said, “Don’t tax you, don’t tax me, tax the fellow behind the tree.” In any case, we find ourselves in an economy that continues to be bolstered by government spending, which, all things being equal, is inflationary. The outcome continues to support risk assets, especially those with longer durations and the ability to hedge currency debasement.
A final note on Artificial Intelligence (AI). I’ve had an unusually high number of recent conversations and have seen an increasing amount of research on this topic. AI is both fascinating and horrifying, all at the same time. I hope that the deflationary effects of AI and technology can help stem some of this unending inflation we are seeing worldwide. Only time will tell. Thank you for reading.
Market Performance YTD
Sources: Kwanti Portfolio Analytics, TradingView
Quote of the Month
“Nothing stops this train.” Lyn Alden…referring to fiscal dominance.
References
DISCLOSURES & INDEX DESCRIPTIONS
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