Memo
Summary of Current Economic Indicators and Market Trends
Market & Economic Update
FOMC Minutes
The Fed might consider pausing its balance sheet runoff to keep liquidity flowing in the financial system. This comes amid expected uncertainty, especially with debt ceiling negotiations on the horizon. For more details, check the Fed’s official statement.
PMI Data
The latest PMI figures show a split: services are slowing while manufacturing is picking up. The services sector is feeling the pressure from Trump-related risks, particularly tariff concerns, which could squeeze corporate margins. Meanwhile, manufacturing is benefiting from businesses pulling forward trade activity ahead of potential tariff hikes.
Market Sentiment Shift
The market is currently caught between two competing narratives on tariffs and their broader impact:
Tariff-Driven Inflation: The initial concern was that tariffs would push prices higher, fueling inflation and forcing the Fed to keep rates elevated for longer. In this scenario, we typically see:
Higher U.S. yields as markets price in a more hawkish Fed stance.
Stronger USD, driven by yield differentials.
Equities holding up or even rising, as recession risks remain in the background.
Emerging market currencies weakening, as higher U.S. rates pressure capital flows.
Tariff-Driven Economic Slowdown: Recently, the focus has started shifting to how tariffs could hurt corporate profit margins, leading to weaker economic activity. If this narrative takes hold, we can expect:
Lower USD, as recession concerns replace inflation fears.
Equities selling off as a first reaction, reflecting increased downside risks to growth.
Potentially faster Fed rate cuts, as policymakers react to economic deterioration.
Right now, the market is swinging between these two perspectives, reacting to new data and policy signals. Recent moves in bond yields suggest that concerns over economic activity are starting to gain traction.
Investment Outlook & Strategy
With this backdrop, I see current market weakness as a buying opportunity, particularly with a constructive outlook heading into late 2025. My approach for this year includes:
Two-Portfolios Strategy: A short-term, actively managed portfolio alongside a stable, long-term allocation.
Leaning Into Stability: Given expected volatility, I’m prioritizing o weighining the long-term portfolio to manage risks. Positioning in precious metals and equities with targeting the end of 2025 still makes sense to me as long as the base scenario is rate cuts.
Key Areas to Watch
The balance between rate expectations and recession risks remains a key driver, with the latter taking center stage. I’m keeping a close eye on the labor market—employment and consumer spending will be critical for economic resilience.
Next Steps
I’ll be monitoring developments around the debt ceiling, tariff policies, and labor market data to adjust the strategy accordingly.
Also, aside from today’s topic, I’ve been getting questions about whether I consider company fundamentals or strictly focus on charts when I give a trade idea. I’ve shared my thoughts in the video below:
Best,
Roy Güllüoğlu
Founder, Rationale