Rising from the Slowdown: How 2025 May Unleash Global Reflationary Forces

Several asset classes have recently seen drastic shifts in performance. Long-dated US treasuries have rallied, with bond proxies such as utilities, staples, and healthcare outperforming in equity markets. On the flip side, deep cyclicals like energy, materials, and industrials have struggled significantly. Commodities, excluding gold, have also experienced a sell-off.

Two primary reasons underpinned this rotation:

• US Consumer Weakness: Concerns emerged around the US consumer’s strength following record downward payroll revisions during the summer. Companies like Dollar General, Target, Starbucks, Nike, and Lululemon contributed to the fear with disappointing corporate reports, adding to the impression that the US economy was slowing.
• China’s Economic Troubles: China’s economic data, especially related to its real estate sector, continued to deteriorate. Fears of a balance sheet recession growing out of control intensified after the third plenum of the Communist Party failed to deliver significant measures for economic recovery.

2. Global Economic Stagnation and Uncertainty