Monthly House View - June 2025 - Download here

US retail investors remain optimistic about the equities market and continue to allocate their savings toward it. But to what extent? And for how long? The question remains open, especially given the increasing expectations of households regarding the fiscal measures promised by Donald Trump. While awaiting the potential implementation of tax cuts outlined in the “Big Beautiful Bill Act” (or BBB), credit card payment delinquencies have reached unprecedented levels in the past 20 years, rising nearly 60% in volume over the last three years to represent 20% of the total (or one in five defaults). Some Americans are even dipping into their retirement savings to cover everyday expenses such as rent or medical bills. 

The discussion around this budget, which is expected to cost at least 3 trillion dollars over 10 years, comes at a time when Moody’s, the last agency to rate United States (US) debt at AAA, has downgraded this rating. It highlights the negative trajectory of the deficit, which is expected to continue deteriorating and reach 9% in 10 years, according to their forecast. This tense fiscal context is further complicated by the growing polarisation of the US economy, adding another layer of complexity to the country’s financial challenges. 

Indeed, it is surprising to see how the economy of Democratic states, referred to as the “blue economy”, differs from that of Republican states, known as the “red economy”. It is almost as if there were two distinct countries. Today, the blue states have an economy with a gross domestic product (GDP) equivalent to that of China, representing about two-thirds of the US economy. In comparison, the red economy accounts for about one-third of US GDP, or over 10 trillion dollars. However, the number of millionaires is increasing more rapidly in the red economy, which now comprises almost half of Americans earning over a million dollars. Additionally, inflation and growth expectations vary significantly between these two political regions. Even the goods consumed, and culinary preferences differ greatly. In terms of stock portfolios, those of Republicans perform significantly better. 

As the US economy appears more divided than ever, it is crucial to find ways to finance the BBB fiscal plan. The cost-cutting and workforce reduction programme within the public sector, managed by the Department of Government Efficiency (DOGE), has not yielded the expected results. The initial goal was to reduce spending by 2 trillion dollars, but so far only 160 billion dollars has been saved.

 Another preferred financing source by the government involves the implementation of tariffs. The US administration has set an ambitious goal of signing 90 agreements in 90 days. To date, only two major agreements have been reached: one with the United Kingdom and another with China. Considering such an endeavour should take years, it is very likely that the other 88 agreements will not be signed before the deadline of 8 July, and the diplomatic dance of bilateral negotiations on this matter will continue throughout the summer.

In this context, trade negotiations between the United States and Europe will be crucial for the future trajectory of inflation. We have revised our global growth forecasts downward for the coming year, with a likely convergence of US and European growth rates. Inflation is expected to remain high in the United States, while it should normalise in Europe. 

In our investment strategies, we remain highly diversified, with a preference for equities in regions benefiting from economic stimulus and minimal exposure to US duration on the fixed income side. Meanwhile, gold remains the ultimate safe haven, and we keep cautious regarding the dollar. Unlisted assets continue to be attractive, and in this edition, we will discuss the benefits of holding private debt, particularly through semi-liquid funds in portfolio allocations.

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_{Monthly House View, 23.05.2025. - Excerpt of the Editorial}