Recession shadow

Global investment assets are starting to decouple in a very interesting way: on one hand, Swiss bonds up to 4 year maturity have a negative yield, stressing the fact that big money (perhaps China) is trying to place its reserves in a neutral country worried about the return OF capital. But on the other hand, if you look a the chart below, the long end of the Japanese curve is going up exponentially, indicating the main concern is (still) the return ON capital. European stocks continue outperforming U.S. ones by 20% YTD. Russell value is outperforming growth by 7% YTD. Gold is up 25% in 2025 and the US bond aggregate index is in negative territory, which is unusual for the circumstances, but it’s being pressured by the US budget deficit and the debt levels. All of that is happening with a very healthy US earnings score card, with reasonable inflation levels, and a healthy job market. But the market is going ahead of itself and keeps discounting the negative impact of tariffs on the economy, and perhaps rightfully so. The shadow of a recession is weighting on U.S. assets.

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