Market Report - June 1st 2025

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Market Analysis Report - May 30, 2025

🧠 Market Report - May 30, 2025

Summary

This market analysis report, prepared by ECO, the AI economist developed by myStockDNA, provides insights into the current economic landscape and asset class performance. The analysis indicates a likely transition into a stagflationary recession, characterized by persistent inflation and slowing growth. Based on this environment, the Darwin Quarterly Asset Compass recommends a diversified portfolio allocation that balances risk across various sectors, aiming to optimize returns while minimizing drawdown risk.

Market Report

Introduction

This market analysis report synthesizes recent asset class performance data and insights from a panel of expert economists representing both progressive and conservative perspectives. The analysis employs the Moneyball methodology to guide asset allocation decisions, focusing on where capital is flowing across different economic regimes.

Asset Class Performance - Where is the money flowing?

Asset Class Ticker Rolling Month Return Rolling Quarter Return Rolling Year Return Comments
Stocks SPY 5.65% 1.38% 13.31% Moderate returns with a positive trend, but recent underperformance in big tech.
Bonds TLT -2.72% -6.12% -0.62% Recovery signals in early 2025, but recent returns are negative.
Gold GLD 2.74% 14.57% 41.95% Strong performance, benefiting from market uncertainty and inflation concerns.
US Dollar UUP -0.40% -5.67% 0.10% Slight negative returns, reflecting a weaker dollar due to monetary policy expectations.
Crypto BTC-USD 9.48% 12.09% 56.53% Strong performance with high volatility, indicating robust growth despite drawdowns.

Recent Economic News - What are the significant news items that may potentially impact the money flow?

Category News
FED Actions The Federal Reserve held interest rates steady at 4.25% to 4.50% and is evaluating improvements to its monetary policy framework.
Government Actions New tariff structures were implemented, leading to market volatility, but some tariffs were reduced to facilitate negotiations.
Employment Scenario Economic projections indicate slower growth and higher inflation by year-end.
Geo-Political Events Ongoing trade tensions and tariff negotiations continue to affect economic stability.
International Markets International markets experienced upheaval following U.S. tariff announcements, leading to significant sell-offs and rallies.

What does our Expert Economist Panel think?

The expert economist panel provides a balanced perspective on the current economic environment:

  • Progressive Economists: Cautious on growth due to ongoing tariff volatility and inequality concerns. They expect inflation to remain a concern, particularly affecting lower-income groups. Job market growth is slowing, and they advocate for fiscal policies to support wage growth.
  • Conservative Economists: More optimistic about growth prospects if tariffs are rolled back and deregulation continues. They expect moderate GDP growth and believe inflation will moderate but remain above target. The job market is seen as resilient, with steady hiring expected.
  • Balanced View: Growth outlook is uncertain, with downside risks from geopolitical tensions and tariffs. Inflation is expected to gradually decline, and job market growth is anticipated to slow but remain steady.

What is the likely economic regime going forward?

Economic Regime Likelihood Comments
Inflationary Growth Medium Moderate growth in stocks and strong performance in gold suggest some resilience, but inflation concerns persist.
Stagflationary Recession High Tariff volatility and slowing job growth indicate risks of stagnation alongside persistent inflation.
Deflationary Recession Low Current indicators do not strongly suggest a deflationary environment, as inflation remains a concern.

What is the likely impact of the likely economic regime on the performance of the different asset classes?

Asset Class Inflationary Growth Stagflationary Recession Deflationary Recession
Stocks Moderate gains Potential declines Significant declines
Bonds Moderate returns Poor performance Strong performance
Gold Strong performance Very strong performance Moderate performance
US Dollar Weak performance Weak performance Strong performance
Crypto Strong performance Volatile performance Weak performance

Comments on Likelihood of Each Regime

  • Inflationary Growth: This scenario is plausible given the moderate performance of stocks and strong gold returns, but persistent inflation concerns temper optimism.
  • Stagflationary Recession: High likelihood due to tariff volatility, slowing job growth, and inflation pressures, which could lead to stagnation.
  • Deflationary Recession: Low likelihood as current indicators do not suggest a deflationary environment, with inflation remaining a significant concern.

Asset & Sector Diversification Recommendations

Based on the latest allocations for the Darwin Quarterly Asset Compass as of March 31, 2025, the recommended portfolio allocations are as follows:

Sector Allocation (%)
Consumer Discretionary 19.00
Consumer Staples 18.36
Bonds 22.20
Gold 17.89
US Dollar 20.28
Crypto 2.28

Date of Allocation: March 31, 2025

This allocation strategy is designed to balance risk and return in the current economic environment, which is leaning towards a stagflationary recession. The compass, when using ETFs, has historically delivered returns comparable to the S&P 500 but with less than one-third the drawdown risk at a monthly level.

For more details, you can check the Darwin Quarterly Asset Compass here.

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