Market Report - July 1st 2025

🧠 Market Report - July 1, 2025

Summary

This market analysis report has been prepared by ECO, the AI economist developed by myStockDNA, taking into account recent asset class performance and insights from an expert economist panel representing both progressive and conservative views. The analysis employs the Moneyball methodology to guide asset allocation, focusing on where the money flows across different economic regimes.

Market Report

Market Analysis Report

Prepared by ECO - the AI economist created by myStockDNA

This market analysis report has been prepared by ECO, the AI economist developed by myStockDNA, taking into account recent asset class performance and insights from an expert economist panel representing both progressive and conservative views. The analysis employs the Moneyball methodology to guide asset allocation, focusing on where the money flows across different economic regimes.

Recent Economic News

Understanding recent economic news is crucial as it provides context for market movements and potential shifts in investor sentiment. This section highlights significant news items that may impact money flow in the markets.

Digest of Recent Economic News:

Stocks:

• The S&P 500 and Nasdaq have recently reached record highs, buoyed by strong economic indicators such as jobless claims and durable goods orders. However, major tech stocks like Nvidia, Alphabet, Microsoft, Apple, Amazon, and Meta have experienced slight declines, while Tesla surged nearly 4% following the launch of a driverless robotaxi service in Austin, Texas. Earlier in April, stocks had faced sharp declines due to concerns over President Trump's tariff policies and trade tensions with China, which increased economic uncertainty.

Bonds:

• The yield on the 10-year US Treasury note has been fluctuating between 4.25% and 4.35%, with expectations of a decline to 4.25% by the end of 2024 due to anticipated Federal Reserve rate cuts starting in Q3 2025. The bond market remains sensitive to tariff developments and fiscal policy, with risks including a potential rise in tariffs leading to yields above 5% and fiscal austerity measures.

Gold:

• Gold prices have surged to record highs, recently trading near $3,440 an ounce, up about 30% since the start of 2025. This rally is driven by geopolitical tensions, trade uncertainties, and investors seeking safe-haven assets amid stock and bond market volatility. Although gold futures dipped slightly to around $3,380 recently, the metal remains a favored asset among fund managers amid ongoing economic and geopolitical risks.

US Dollar:

• The US dollar index has strengthened, reaching its highest level of the month at 99.24, reflecting demand for the dollar amid global uncertainties and mixed economic signals.

Crypto:

• While specific recent data on cryptocurrency markets is not available, the broader market volatility and safe-haven flows into gold and the dollar suggest that crypto markets may be experiencing mixed or cautious investor sentiment.

Economic Outlook:

• The US economy is expected to grow at a slower pace in 2025 compared to previous years, with consumer spending slowing but benefiting from lower inflation and tariffs. The Federal Reserve is projected to cut interest rates gradually starting in Q3 2025, supporting business investment and productivity gains from deregulation and AI advancements. A downside risk scenario involves escalating tariffs up to 25% on many imports, including 75% on Chinese goods, which could push bond yields higher and force fiscal austerity measures.

Summary Table

Market	Recent Trend/News	Impact Drivers
Stocks	Record highs in S&P 500/Nasdaq; tech stocks mixed; Tesla up on innovation	Economic data, tech sector dynamics, tariffs
Bonds	10-year yield ~4.3%, expected to decline with Fed cuts; sensitive to tariff/fiscal risks	Fed policy, tariffs, fiscal outlook
Gold	Record highs near $3,440/oz, up 30% YTD; slight recent dip	Geopolitical tensions, trade uncertainty
US Dollar	Strengthened to monthly high (99.24)	Safe-haven demand, mixed economic signals
Crypto	No recent data available	Likely mixed sentiment amid market volatility
Economy	Slower growth expected; Fed rate cuts anticipated; risks from tariff escalation	Inflation, tariffs, Fed policy, AI productivity

This evolving mix of trade tensions, Fed policy shifts, and geopolitical risks continues to shape investor behavior across US markets.

What Does Our Expert Economist Panel Think?

This section provides a balanced perspective based on insights from economists across the political spectrum, focusing on growth, inflation, jobs, and policy outlooks.

Summary of Expert Economists' Views as of Mid-2025:

Perspective	Growth	Inflation	Jobs	Policy	Economic Scenarios
Progressive (e.g., Paul Krugman, Joseph Stiglitz)	Expect slowing growth with real GDP decelerating to around 1.5% in 2025 and 1.3% in 2026 due to demand cliff and tariff impacts. More cautious about recession risks.	Concerned about inflationary pressures from tariffs and supply chain disruptions, though inflation is expected to cool slightly to ~2.4% in 2025.	Anticipate weaker labor market conditions as higher tariffs and slower growth compress profit margins and reduce hiring.	Favor targeted fiscal stimulus to support lower-income households, wary of austerity and spending cuts that disproportionately affect vulnerable groups.	- Baseline: Slow growth (~1.5%), moderate inflation, cautious labor market - Upside: Stimulus measures improve demand, inflation eases - Downside: Prolonged tariff impacts, recession risk rises, job losses increase
Conservative (e.g., Art Laffer, Steve Moore)	More optimistic on growth, expecting around 2.1% GDP growth in 2025 with potential productivity gains from deregulation and AI.	Expect inflation to fall more quickly due to lower tariffs and Fed’s dovish rate cuts starting Q3 2025.	Jobs outlook is positive with business investment rising due to deregulation and lower interest rates supporting hiring.	Support tax cuts, deregulation, and trade deals to boost investment and productivity; cautious about fiscal deficits but prioritize growth-friendly policies.	- Baseline: Moderate growth (~2.1%), inflation easing, steady job gains - Upside: Strong productivity growth, successful trade deals, faster inflation decline - Downside: Tariff escalation, bond market volatility, austerity pressures
Balanced (consensus of mixed panels)	Expect growth to slow from recent highs but remain positive around 1.5-2.1% in 2025, with risks skewed to the downside.	Inflation expected to moderate to about 2.4%, helped by easing tariffs and Fed policy.	Labor market to soften but remain relatively stable with unemployment around 4.3%.	Policy likely to be a mix of modest fiscal stimulus and cautious monetary easing, balancing inflation control and growth support.	- Baseline: Moderate growth and inflation, stable jobs - Upside: Policy stimulus and productivity gains improve outlook - Downside: Trade tensions and fiscal constraints trigger recession risks

Key Takeaways:

• Growth: Progressive economists emphasize risks from tariffs and demand shocks leading to slower growth and possible recession, while conservatives highlight productivity gains and deregulation as growth drivers.
• Inflation: Both sides expect inflation to ease but differ on causes; progressives worry about tariff-driven inflation, conservatives see faster disinflation from trade liberalization.
• Jobs: Progressives foresee labor market weakening due to economic headwinds; conservatives expect steady job gains supported by investment.
• Policy: Progressives advocate for targeted fiscal support to protect vulnerable groups; conservatives prioritize tax cuts, deregulation, and trade deals to spur growth.

This balanced view reflects the complexity of the current US economic environment, with scenarios ranging from modest growth and easing inflation to downside risks from trade tensions and fiscal austerity.

Asset Class Performance

Analyzing asset class performance is essential for understanding where money is flowing and how different investments are responding to current economic conditions.

Asset Class	Ticker	Rolling Month Return	Rolling Quarter Return	Rolling Year Return	Comments
Stocks	SPY	4.55%	15.46%	13.94%	SPY showed strong quarterly and yearly returns in 2025, reflecting steady market gains despite some tech underperformance earlier in the year.
Bonds	TLT	3.63%	-3.21%	1.18%	TLT had a positive month but negative quarter return; bond prices rose due to declining consumer confidence and expectations of Fed rate cuts in 2025.
Gold	GLD	-2.19%	6.43%	41.41%	Gold had a strong yearly return, benefiting from safe-haven demand amid economic uncertainty, despite a weak month.
US Dollar	UUP	-1.39%	-3.83%	-3.46%	The US Dollar ETF showed negative returns across all periods, possibly reflecting weakening dollar sentiment amid Fed rate cut expectations.
Crypto	BTC-USD	1.18%	28.92%	72.72%	Bitcoin showed strong quarterly and yearly returns, continuing its high volatility but overall bullish trend in 2025.

Returns are based on the "return" metric converted to percentages.

What is the Likely Economic Regime Going Forward?

This section synthesizes the insights from asset class performance, expert economic perspectives, and recent news to project the likely economic regime for the U.S. economy.

Current Economic Indicators:

1. Asset Class Performance:
   • Stocks (SPY): Strong performance in both quarterly and yearly returns suggests growth, but the mixed performance of major tech stocks indicates underlying volatility and sector-specific challenges.
   • Bonds (TLT): Positive monthly returns but negative quarterly returns indicate a cautious bond market, likely influenced by expectations of Fed rate cuts and declining consumer confidence.
   • Gold (GLD): Strong yearly performance suggests a safe-haven demand amid economic uncertainty, which is often indicative of stagflationary conditions.
   • US Dollar (UUP): Weak performance across periods suggests a declining sentiment towards the dollar, potentially reflecting concerns about inflation and trade policies.
   • Crypto (BTC-USD): Strong returns indicate a bullish sentiment, but high volatility suggests investor caution.
2. Expert Economic Perspectives:
   • Progressive Economists: Expect slowing growth (~1.5% in 2025) and moderate inflation (~2.4%), with concerns about recession risks.
   • Conservative Economists: More optimistic about growth (~2.1%) and expect inflation to fall more quickly due to Fed policy and deregulation.
   • Balanced View: Anticipates moderate growth and inflation, with risks skewed to the downside.
3. Recent Economic News:
   • Record highs in stock indices indicate growth, but concerns over tariffs and trade tensions create uncertainty.
   • Gold prices at record highs suggest safe-haven demand amid geopolitical tensions and economic volatility.
   • The Fed's anticipated rate cuts could support growth but also reflect concerns about economic slowdown.

Economic Regime Projections

Given the above indicators, we can project two potential economic regimes:

Scenario 1: Stagflationary Recession (High Likelihood)

If inflation remains stubbornly high due to tariffs and supply chain disruptions, and growth slows significantly (as indicated by progressive economists), then we could enter a stagflationary recession. This scenario is supported by the strong performance of gold and the mixed signals from the stock market, indicating that while some sectors may perform well, overall economic conditions could deteriorate.

Indicators: High inflation (above 3%), stagnant or negative GDP growth, rising unemployment, and continued safe-haven demand for gold.

Scenario 2: Inflationary Growth (Medium Likelihood)

If the Federal Reserve successfully implements rate cuts and fiscal policies that stimulate demand, and inflation moderates as expected by conservative economists, then we could transition into an inflationary growth regime. This scenario is supported by the strong performance of stocks and the potential for productivity gains from deregulation and AI advancements.

Indicators: Moderate GDP growth (around 2%), controlled inflation (around 2-2.5%), and stable job growth.

Conclusion

The U.S. economy is at a crossroads, with mixed signals suggesting both potential for growth and risks of recession. The most likely outcomes are a stagflationary recession or a transition to inflationary growth, with high and medium likelihoods, respectively. The remaining scenarios could encompass other outcomes, including a deflationary recession if economic conditions worsen significantly.

Key Considerations

• Policy Actions: The Federal Reserve's decisions on interest rates and fiscal policy will be crucial in determining the economic trajectory.
• Trade Relations: Ongoing trade tensions and tariff policies will significantly impact inflation and growth.
• Consumer Confidence: The labor market and consumer spending will be critical in sustaining growth or triggering a downturn.

In summary, the economic regime we transition into will depend heavily on the interplay of these factors, and close monitoring of economic indicators will be essential in the coming months.

Likely Impact of the Economic Regime on Asset Class Performance

Based on the projected economic regimes for the U.S. economy, we can analyze the likely impact on different asset classes. Below is a table summarizing the expected performance of key asset classes under the two most probable scenarios: Stagflationary Recession and Inflationary Growth.

Economic Regime	Likelihood	Stocks (SPY)	Bonds (TLT)	Gold (GLD)	US Dollar (UUP)	Crypto (BTC-USD)
Stagflationary Recession	High	Mixed performance; potential for declines in growth sectors, but defensive stocks may hold up.	Likely to see increased demand for bonds as investors seek safety, leading to price appreciation.	Strong demand as a safe haven; prices may rise further amid economic uncertainty.	Likely to weaken due to inflation concerns and reduced confidence in economic stability.	High volatility; may see speculative interest but overall risk aversion could dampen demand.
Inflationary Growth	Medium	Positive performance; growth sectors may thrive, driven by consumer spending and productivity gains.	Moderate performance; potential for slight declines if inflation expectations rise, but could benefit from rate cuts.	Stable to slightly rising prices; demand may moderate as growth expectations improve.	Likely to strengthen as economic growth boosts confidence and demand for the dollar.	Potential for strong performance; increased adoption and investment as economic conditions improve.

Scenario Context

1. Stagflationary Recession (High Likelihood):

If inflation remains stubbornly high due to tariffs and supply chain disruptions, and growth slows significantly, then the stock market may experience mixed performance. Defensive sectors (e.g., utilities, consumer staples) may perform better, while growth sectors (e.g., technology) could face declines.

Bonds are likely to see increased demand as investors seek safety, leading to price appreciation despite the overall economic downturn.

Gold is expected to see strong demand as a safe haven, with prices likely rising further amid economic uncertainty.

The U.S. dollar may weaken due to inflation concerns and reduced confidence in economic stability, impacting international trade and investment.

Crypto may experience high volatility; while some investors may seek it as an alternative asset, overall risk aversion could dampen demand.

2. Inflationary Growth (Medium Likelihood):

If the Federal Reserve successfully implements rate cuts and fiscal policies that stimulate demand, and inflation moderates, then the stock market is likely to perform positively, particularly in growth sectors driven by consumer spending and productivity gains.

Bonds may see moderate performance; while rate cuts could support prices, rising inflation expectations may lead to slight declines.

Gold prices may stabilize or rise slightly, as demand may moderate with improved growth expectations.

The U.S. dollar is likely to strengthen as economic growth boosts confidence and demand for the dollar, positively impacting international trade.

Crypto could see strong performance, with increased adoption and investment as economic conditions improve, although volatility remains a concern.

Conclusion

The analysis indicates that the U.S. economy is at a critical juncture, with the potential for both stagflationary recession and inflationary growth. The performance of various asset classes will be heavily influenced by the prevailing economic conditions, monetary policy actions, and consumer sentiment. Investors should remain vigilant and adaptable to these changing dynamics.

Asset & Sector Diversification Recommendations

The latest allocations for the Darwin Quarterly Asset Compass as of July 1, 2025 are as follows:

Sector	Allocation (%)
Consumer Discretionary	52.13
Consumer Staples and Defensive	17.14
Bonds	4.77
Gold	17.14
US Dollar	4.77
Crypto	4.06

The total allocation adds up to 100%. This strategy has delivered around the same return as the S&P 500 but with less than 1/3rd the drawdown risk at a monthly level. For more details, you can check the Darwin Quarterly Asset Compass.