Latest / Paramount Wealth Perspectives / Global Shifts & Market Signals, A Midyear 2025 Check-In - 5/22/25

Transcript

Global Shifts & Market Signals, A Midyear 2025 Check-In - 5/22/25 · Paramount Wealth Perspectives

• 0:00
  Chris Coyle: Intro song
• 0:12
  Hello everyone.
• 0:12
  Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events.
• 0:20
  This is your host, Chris Coyle.
• 0:22
  I am the marketing director here at Paramount Associates Wealth Management, and I'm joined by Scott Tremlett, chief Investment Officer at Paramount Associates Wealth Management.
• 0:31
  Today we're diving into the key takeaways from our latest market overviews as of May 14th, 2025.
• 0:38
  Global rankings are shifting, tariffs are heating up and monetary policy divergence is changing the game for investors.
• 0:47
  Let's frame this through four big questions, but before we do, I'd like to take a minute to explain what goes into our Paramount global rankings.
• 0:55
  Our proprietary economic ranking model starts with a deep dive into growth using indicators like retail sales.
• 1:03
  Employment and leading economic signals to assess both current strength and momentum across economies.
• 1:10
  We then apply a monetary policy overlay to factor in central bank actions, adjusting for whether policy is acting as a tailwind or headwind.
• 1:20
  Finally, we layer in market valuations to determine where risk and reward are most compelling, ensuring we're not just chasing strength that's already priced in in this three-tiered approach.
• 1:32
  Which helps us identify not only where economies are today, but where they're heading and how to best position around them.
• 1:40
  It's a disciplined, data-driven framework that blends macro insights with market realities.
• 1:46
  With that understanding, I'd like to start with my first question.
• 1:49
  I.
• 1:50
  Scott, what is driving the changes in global economic rankings and why has India emerged as the top performer?
• 1:58
  Thanks, Chris.
• 1:59
  Yes.
• 1:59
  India does currently hold the number one global ranking.
• 2:02
  In fact, I looked over the last two and a half years and there was only one month that it fell from the number one spot, and that was all the way down to number three.
• 2:11
  This time it's really driven by both.
• 2:12
  Current economic strength and positive momentum.
• 2:16
  Consumer inflation in India dropped to 3.1% in April.
• 2:20
  That's the lowest level since 2019.
• 2:22
  Thanks largely to 11% year over year decline in vegetable prices.
• 2:27
  This disinflation trend has allowed the Reserve Bank of India to cut rates twice, bringing the benchmark rate to 6%, and really a shift to more of an accommodative stance.
• 2:39
  They are signaling that they will provide further support if needed.
• 2:42
  But let's keep in mind that, and when it comes to inflation, India's okay with inflation from four to 6%.
• 2:49
  So obviously then pure numbers, 3.1% is below that number.
• 2:54
  India really does have a competitive advantage versus many countries when it comes to tariffs.
• 3:00
  They're more insulated from tariff issues than other Asian countries, really due to strong domestic consumption.
• 3:06
  Meanwhile.
• 3:07
  Australia ranked second benefiting from broad based economic expansion.
• 3:12
  Though its growth remains modest at about 1.5% expected this year, China ranks third supported by strong manufacturing and services, as well as rate cuts down to three to 3.5% in response to US trade pressures.
• 3:28
  The US on the other side.
• 3:30
  Has slipped to ninth place really hurt by momentum, weak momentum despite solid current economic performance, particularly in services and retail sales.
• 3:41
  Absolutely.
• 3:41
  I agree.
• 3:42
  Scott India's position at the top makes perfect sense given the combination of strong growth, momentum, and cooling inflation, which has opened the door to meaningful policy support the Reserve Bank's rate cuts.
• 3:55
  And accommodative stance, give it a unique edge right now, especially compared to slower moving economies like the US where the momentum is clearly fading.
• 4:05
  Next question for you, Scott, is how are tariffs affecting inflation and monetary policy?
• 4:11
  In the United States, tariffs are definitely playing a significant role in in shaping inflation dynamics.
• 4:17
  Right now, a Federal Reserve estimate shows that a 20 percentage point increase in tariffs on Chinese goods alone raise core goods and inflation by about 0.33 percentage points in just three months.
• 4:30
  With over half of the costs now being passed on to consumers, this is directly impacting household budgets.
• 4:36
  In fact, Yale Budget Lab.
• 4:38
  Projects that US families will pay an average of$2,800 more in 2025 due to tariff related inflation.
• 4:45
  Now, keep in mind this is very bifurcated, and what I mean by that is that lower income households are hurting more because it takes more of their income to create the additional$2,800 a year just to pay the bills.
• 4:59
  But just to play a devil's advocate here, there are potential tariff positives.
• 5:04
  Imagine that.
• 5:05
  Such as maybe revenue for specific initiatives like infrastructure projects or manufacturing incentives.
• 5:12
  Possible support for industries in the US with less foreign competition.
• 5:16
  Possibly some would say reassuring supply chains, but that would take a lot of money and years to accomplish.
• 5:24
  And of course negotiation leverage where it seems the focus is with the tariffs to this point, fed Chair Jerome Powell has expressed concern that new tariffs could delay the path to 2% inflation target possibly postponing rate cuts for up to a year, despite inflation falling all the way from, remember this 9% in 2022 to roughly 2.3%.
• 5:49
  Now the outlook now is, is pretty uncertain.
• 5:53
  Persistent wage growth at 3.4%.
• 5:56
  Strong consumer spending and supply chain disruptions are all factors contributing to underlying inflation pressure at this point.
• 6:03
  And as a result, the Fed is expected to cut rates only once in 2025, if at all.
• 6:09
  You make a critical point there, Scott.
• 6:11
  Tariffs are both a geopolitical tool and a key inflation driver.
• 6:16
  Directly affecting consumer wallets and therefore fed policy with families potentially paying nearly$3,000 more this year, and rate cuts being pushed out further into the future.
• 6:27
  It's clear that trade policy is shaping the macro landscape as much as monetary policy right now.
• 6:34
  My third question for you, Scott, is related to international markets.
• 6:38
  Do they present better investment opportunities than in the United States currently?
• 6:43
  Well, before I discuss positioning, let me mention that investors should speak with their advisor, or better yet, give us a call before implementing any investment strategy.
• 6:53
  But yes, Chris, there are opportunities abroad and I have adjusted positioning accordingly.
• 6:59
  The US market while resilient.
• 7:02
  Now faces valuation headwinds.
• 7:04
  US stocks recently have traded at almost 70% premiums over non-US equities.
• 7:10
  This compares to a historical average of 20 to 40%, and that makes international markets more attractive simply from a relative valuation standpoint.
• 7:19
  Year to date.
• 7:20
  Developed international markets measured by the MSCI EFI Index are up over 10% while the s and p 500 is now down again for the year.
• 7:30
  Accommodated essential banks, lower earnings expectations and currency advantages are fueling international performance.
• 7:38
  I have shifted to overweight developed international equities, especially in markets where monetary and fiscal policy are aligned with growth goals.
• 7:48
  Emerging markets are now equal weight.
• 7:49
  With cautious optimism toward China's fiscal stimulus and sustained strength over in India.
• 7:56
  Absolutely that shifts makes sense to me, Scott, when US equities are trading at a 70% premium to international peers, the valuation gap alone justifies some rebalancing, at least with developed international markets outperforming and policy tailwinds supporting growth abroad.
• 8:14
  Tilting toward those regions is both a tactical and I would say fundamentally sound move.
• 8:20
  And now for my final question with rising macro risks, what's the most strategic approach to portfolio positioning for the rest of 2025?
• 8:30
  In one word, selectivity.
• 8:33
  Broad market gains may slow.
• 8:35
  So the emphasis shifts the sectors and securities with durable fundamentals.
• 8:40
  I'm currently underweight US equities, citing overvaluation and slowing economic momentum.
• 8:46
  Overall.
• 8:47
  On the fixed income side, I'm underweight US treasuries.
• 8:50
  I.
• 8:51
  And definitely underweight public corporate bonds.
• 8:54
  I do favor private credit instead for its stronger yield potential.
• 8:58
  In this elevated rate environment that we're in currently, credit markets are forcing more, and I would call it lateral thinking.
• 9:05
  I see infrastructure as a better alternative to traditional bonds.
• 9:09
  These assets often outperform in high rate environments thanks to inflation.
• 9:14
  Link revenue streams on the equity front.
• 9:17
  Stock picking is definitely critical.
• 9:20
  Look for companies with pricing, power, earnings, resilience, and strategic sector placement.
• 9:26
  My projection still stands for the s and p 500 by year end to 61, 75 to 63 50 up about five to 7% from current levels.
• 9:37
  Risks are definitely growing to the downside of that range.
• 9:41
  Upside is limited.
• 9:42
  By valuation concerns, policy uncertainty, and global slowdown risks.
• 9:47
  The smart move now is to focus on fundamentals, not speculation, and to diversify into regions and sectors with favorable policy and valuation, tailwinds and not headwinds.
• 10:02
  I concur, Scott.
• 10:03
  This is a market where selectivity matters more than ever.
• 10:06
  And focusing on quality assets like private credit infrastructure and fundamentally strong equities is key to navigating limited upside and rising macro risks.
• 10:17
  Well, I really appreciate you taking the time to share your insights.
• 10:20
  Scott, I also want to thank all of our listeners for tuning in.
• 10:24
  And remember, if you have a question you would like to hear our perspective on, please submit them via email to general@paramountassoc.com.
• 10:35
  For now, stay informed.
• 10:37
  Stay ahead and join us next time for more key updates shaping the global economy.