Interview, Fireside Chat
More dollar weakness ahead?
- Geopolitical risks regarding oil price spikes are expected to subside quickly with lower, longer-dated prices reasserting themselves as current tensions unwind, though the scariest market moments regarding supply disruption tail risk are considered passed.
- The current geopolitical tension is forecast not to be a lasting major theme of 2025, with market focus shifting toward trade, fiscal policy, the reemergence of the AI trade, and potential federal interest rate cuts.
- Structural changes in U.S. financing are anticipated to drive a historic period of sustained dollar weakness similar to 2002–2005, providing a tailwind for non-U.S. equities in dollar terms.
- July rate cuts are deemed exceedingly unlikely, with market expectations centered on a potential shift in narrative and action beginning in September or December, contingent on the unemployment rate rising to the 4.4% to 4.5% range.
- The U.S. is projected to enter a structurally more dovish regime persisting for four to eight years, characterized by lower short rates and a steeper yield curve.
- Fiscal negotiations and the July tariff deadline are expected to generate headline noise but are unlikely to constitute giant market events or alter the market narrative due to a high threshold for disruption and an assumption of compromise.
- Fiscal packages may soon bring the back end of the yield curve back into market focus over the next couple of months.
- U.S. earnings growth is projected at 7% for the current year and 7% for next year if the economy returns to trend growth, with capital expected to remain in the U.S. for fundamental reasons despite high valuations.
- Hedging strategies may become more attractive as volatility declines and options prices decrease, while risk premiums have room to decrease and stocks to drift higher absent fresh shocks.
- Markets may see increased focus on the next payroll print in early July, which could serve as a critical data point for the upcoming monetary policy debate.