“Transition”

Market index returns

Week to date since March 5, 2025 as of March 12, 2025

Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.

Market commentary

Reworking the terms of trade and the U.S. economy will take a period of “transition” according to U.S. President Trump. Statements such as that, and others made by administration officials, lowered the market’s belief in a “Trump put.” The intra-day trade spats continued as steel and aluminum U.S. tariffs went into effect, drawing retaliatory measures from targeted nations, and prompting further escalation from President Trump. The trade spat, and its uncertainty, weighed on consumer and business sentiment and threatens to crimp global growth and corporate earnings. One indicator of these concerns was the NFIB Small Business Optimism Index, which fell to 100.7, slowing from a multi-year high of 105.1, touched at the end of the year. Elsewhere, Germany continues to work towards finalizing an increase in defense spending, despite Green party resistance and China is planning local stimulus to help combat negative trade impacts. Other targeted nations have worked on diplomacy, trying to secure exemptions, rather than direct trade confrontation with the U.S. Separately the Bank of Canada trimmed rates 25 basis points (bps) to 2.75% as it attempts to offset the “pervasive uncertainty” of the ongoing trade battle with the U.S.^[1]

Global equity markets ended the review period weaker, with consumer discretionary and technology stocks falling the furthest, while energy and utility stocks managed to post gains. The Real Assets Index outperformed global equities on a relative basis. Global Natural Resource Equities, Global Infrastructure securities, and Commodity futures outperformed the Real Assets Index with positive returns. Global Real Estate securities lagged the Real Assets Index but outperformed broader global equities on a relative basis. Among other indicators we track, the VIX, an index of expected S&P volatility, rose 10% to 24.2. Inflation break-evens were relatively unchanged for the 10-year segment, and down 2 basis points (bps) for the 5-year, while the nominal yield curve steepened. Credit spreads, the yield premium over sovereign base rates, widened across the credit spectrum, with investment-grade (IG) spreads rising 9 bps and high-yield (HY) spreads rising 31 bps. For the period, the dollar was slightly weaker, ending at 103.61 as measured by the DXY index. Oil prices managed to gain 2% to reach $67.68 per barrel, and gold prices continued to rise, hitting $2,934 per ounce.^[1]

Why it matters: Facing disruption in financial markets, trade flows, and corporate revenues, investors need to stay on their toes to factor in new information and potential outcomes. We continue to monitor the hard data, but also expectations and sentiment, as views and beliefs can translate into actual activity, which is eventually revealed in the hard data.

Macro Dive: We will take a look at inflation and jobs data in the U.S., as well as production and export data in Germany.

• Inflation watch:  The Bureau of Labor (BLS) in the U.S. reported February inflation data. The Consumer Price Index rose 0.2% month-over-month (MoM) for both headline and core measures. Year-over-year (YoY) headline CPI rose 2.8%, and 3.1% for the core measure which excludes food and energy. Both readings came in below expectations. The Producer Price Index (Final Demand) was flat MoM, and 3.2% for YoY, bothalso below expectations. The core measure (which excludes food, energy, and trade) showed similar slowing trends, both MoM and YoY. Softer energy prices contributed to the deceleration, but food price inflation remained stubborn. Looking forward, the NY Fed 1-yr Inflation Expectations rose to 3.13% for February, which was ahead of expectations of 3.10%. The March release of the University of Michigan 1 Year and 5-10 Year Inflation Expectations showed participants pushing inflation expectations higher. The one-year expectations hit 4.9%, which was above the expectations and previous reading of 4.3%. Longer-term expectations (5-10 year) jumped to 3.9%, a level not seen since 1991.^[2]

• Jobs: Initial Jobless Claims for the period ending March 8th came in at 220k, which was slightly below estimates of 225k, and lower than the revised figure of 222k from the prior period. Initial jobless claims for federal employees remained elevated at 1,066 for the same period, with continuing claims ending March 1 was 8,648. This measure will be watched as tens of thousands of federal government jobs are being culled, which could impact consumer spending. The BLS also reported JOLTS job report that was more positive than the jobless claims data. The JOLTS report showed that in January, both openings (7740k vs. 7508k) and the quits rate (2.1% vs. 1.9%) were higher than December data.^[1]

• Germany: As investors watch the shifting landscape of Germany’s comfort with spending and debt issuance, let’s look at recent data readings. Industrial Production (IP) for January (seasonally adjusted month-over-month) rose 2.0%, which was ahead of expectations of 1.5%, and accelerated from the prior revised reading of -1.5%. YoY saw IP fall -1.6%, but that was an improvement versus the previous revised reading of -2.2%. Exports for January were -2.5% MoM, which was well below expectations of 0.5%, and a prior revised reading of 2.5%. The export reading is a key gauge given the country’s reliance on manufacturing and exports to drive growth.^[1]

Real Assets, Real Insights: This week we will look at mergers and acquisitions (M&A) in the health care segment of the real estate sector, confirmation of infrastructure spending for utilities to support AI, and weather impacts on natural gas demand.

• Care-Squared (Real Estate): CareTrust announced that it was acquiring Care REIT in an all-cash transaction which is expected to close in the second quarter. The deal allows CareTrust to enter the UK market via public M&A and obtain a diversified and well-established business. The UK care home market is a mix of senior housing and skilled nursing facilities, which offers an attractive supply/demand outlook, such as an aging population and low supply growth. The acquisition represents a 19% expansion of CareTrust’s asset base, which also grew 50% in 2024.^[3]

• AI spending (Infrastructure):  The AI spending boom continues despite model advances that allow for higher output at lower input amounts. A report from Wolfe Research, released in the first week of March, illustrated the impact on utilities capital expenditure plans (capex), which showed an average increase of 18% of planned capex between 4Q24 and 3Q24. Some companies estimated increases of up to 40%. The total capex increase was $126bn versus prior plans to spend primarily on gas plants, transmission, and renewables. The theme was reiterated at a recent energy conference in Houston where participants confirmed substantial growth in demand, including from data centers. Much of the demand is expected to be met by natural gas, a non-intermittent energy source which will require tech customers to reconcile their energy needs against their climate goals.^[4]

• Convection (Commodities): Weather continued to influence the supply and demand outlook for natural gas in the U.S. and Europe. Milder weather in the U.S. is expected to limit demand in the coming weeks; however, storage stockpiles showed a drop in levels that was greater than expected. Stockpiles in the U.S. as of March 7th were almost 12% below the 5-year average. While warmer conditions emerge in the U.S., persistent colder weather in Europe is expected to drive demand higher. The artic blast that will hit Europe will likely also slow renewable energy generation at a time that gas stocks remain at their lowest point since 2022.^[1]