Global Market Perspectives: The World Turned Upside Down

Key themes for 2Q 2025

• The global economy confronts upheaval as the U.S. looks to restructure international trade. U.S. import tariffs have weakened the U.S. economy, while global economies sought to shore up their foundations to withstand the crosscurrents. Uncertainty is extraordinarily elevated and unlikely to clear immediately.
• U.S. recession odds have spiked. Growth boosting policy measures are required to avoid recession. The economy is being hit from multiple directions as consumers and businesses confront rising price pressures from import tariffs and labor market cracks. Deregulation and tax cuts will have to play a crucial role to offset the sharp rise in effective tariff rates if the U.S. is to skirt recession.
• The Federal Reserve is biased to easy policy, but inflation fears will constrain the number of cuts. Once the Fed has policy clarity, it will be able to focus on labor market concerns and resume rate cutting. Yet, inflation fears imply a shallow cutting cycle, providing only a limited stimulus injection into the U.S. economy.
• U.S. equity markets to remain particularly challenged in the face of recession fears and tech woes. U.S. economic growth is imperative if other sectors are to offset tech weakness. For now, the risk-off mood is likely to persist. International has outperformed as governments strengthen their economic foundations.
• Fixed income is helping to weather the economic slowdown and market pullback. Treasury yields may remain below 4% as recession fears persist. Credit spreads have widened but high-quality credit is performing its traditional role as ballast in investment portfolios.
• The uncertain backdrop is challenging but prompts some important investor considerations. Flows to money market funds have increased as investors defend against pullbacks and uncertainty. Global and crossasset diversification remain crucial for capturing opportunities.