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Big Beautiful…Budget Deficit

Equities

5/21/2025

Weekly Edition

John Vojticek

Head and Chief Investment Officer of Liquid Real Assets

justin_miller_headshot

Justin Miller

Portfolio Specialist, Liquid Real Assets

Headshot image of Edward O'Donnell

Edward O'Donnell

Senior Product Specialist, Liquid Real Assets

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Market index returns

 

Week to date since May 14, 2025 as of May 21, 2025

Chart
Bar chart with 7 bars.
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from -0.3 to 2.8.
End of interactive chart.

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:

Global equity markets had a relatively quiet week given the lack of major market headlines. The shortage of demand and potential for greater supply weighed on energy markets. In geopolitical events the humanitarian crisis in Gaza raised further political pressure on Israel, while the Israeli government proposed an expanded military presence and full occupation of the entire Gaza strip. The negotiations between U.S. President Trump and Russia’s Putin ended with a full spread of nothing-burgers after which Trump further distanced himself from a solution promised on day one of his presidency. U.S. Treasury secretary Scott Bessent attended a G-7 meeting in Canada that ended with a unified statement to address economic imbalances and “nonmarket policies and practices,” which was a veiled reference to China.

The Real Asset Index outpaced global equities in the period on the strength of Infrastructure and Real Estate in Europe and the UK. Global equities ended the period slightly positive as gains in the utilities, consumer staples, and health care sectors outweighed losses in the energy, consumer discretionary, and technology sectors. Global Infrastructure securities outpaced the Real Asset Index, while Global Real Estate, Commodity Futures, and Natural Resource Equities led Global Equities. U.S. TIPS (Treasury Inflation-Protected Securities) was the only real asset segment with negative performance as the curve steepened from long-end yields rising.[1]

Among other indicators we track, the VIX, an index that measures the expected volatility of U.S. stocks, ended the period up 12% at 20.9. Credit spreads were mixed in the period as investment grade spreads fell 1 basis point (bps) and high yield spreads widened 8 bps. The U.S. dollar weakened 1.5%, as measured by the DXY Index, reversing the prior week’s gains. Oil prices also weakened to $61.6 per barrel, a decrease of nearly 2%. Inflation breakevens were roughly unchanged as both the 5-year and 10-year segments tightened 1 bp. Gold prices cooled 4% to $3,315 per ounce.[1]

Why it matters: We continue to monitor economic data, as well as sentiment indicators, as they could eventually feed through to the hard data. Capital markets were spared major headline shocks, but bond vigilantes got a peek at the U.S. budget reconciliation bill passed by the U.S. House of Representatives, which now must be reconciled with the Senate’s bill. The fixed income market sent long-end nominal yields higher as the proposed bill would further widen the deficit.

This week we will review the latest sentiment, jobs, and home data in the U.S., as well as the latest European data.

  • U.S. Sentiment: S&P Global U.S. PMI preliminary data showed optimism as readings expanded. The Manufacturing and Services PMIs both rose to 52.3, up from previous readings and ahead of expectations. These readings conflict with the market’s narrative of a weakening economic environment. Initial jobless claims remained within range at 227k for the week ending May 17, which was below expectations and the prior reading. Continuing claims rose to 1903k, nearing recent highs and up from the prior reading and ahead of expectations.[1]
  • Tea Leaves: The Chicago Fed’s National Activity Index reading of -0.25 for April was softer than the prior month’s revised reading of 0.03. Readings below zero on this report indicate below-trend-growth for the national economy and the potential for easing inflation pressure in the future.[1]
  • In Europe: Business Confidence improved at the margin. The reading for May came in at -13.5, ahead of expectations of -14.0, and better than the prior reading of -14.7. The HCOB Eurozone PMIs were mixed as manufacturing improved to 49.4, from 49.0, and services weakened to 48.9, from 50.1. Germany’s IFO business confidence index rose to 87.5, up from 86.9 in April. The IFO current assessment index fell slightly to 86.1, from 86.4, and the expectations index rose to 88.9, up from 87.4. The data trend could signal a rebound in expectations given the dialing down of the tariff heat and a reduction in the tail-risk for negative impacts.[1]

Real Assets, Real Insights: This week we look at a successful REIT IPO in the Middle East, a stalled wind project, and a halt to cattle imports at the southern U.S. border.

  • Pulp to Paper (Real Estate): Weyerhaeuser announced an acquisition of timberlands across two states in a $375 million deal. The Seattle-based company will acquire 117k acres from Roanoke Timberlands, expected to close in the third quarter. The company will have spent $1.1 billion since the beginning of 2022 to purchase timberlands to meet their growth targets. The land is expected to provide favorable productivity and logging conditions for Weyerhaeuser and immediate cash flow to Roanoke Timberlands.[1]
  • Wheeling & Dealing (Infrastructure): As we have discussed in the prior couple of reports, Norwegian company Equinor ASA, won a reprieve to continue to work on its U.S. Empire wind project in New York. The project was designed to have 54 turbines to power 500,000 homes. NY’s governor Hochul contributed to lobbying efforts aimed at U.S. President Trump to get the project reinstated. The deal was supposedly secured by horse-trading pipeline access for reinstating the wind farm. The state and the federal government remain at odds on other issues, such as congestion pricing, which puts transportation funding at risk for the state.[1]
  • Opening the tap? (Commodities): OPEC delegates floated the idea of increasing the daily production quota to 411k barrels a day in July, contributing to the 14% drop in prices year-to-date. The meeting will take place on June 1st to decide the production cap starting in July. The European Commission also floated the prospect of lowering the price cap on Russian crude to $50/barrel, as the current $60 cap isn’t economically punishing the country for its war on Ukraine.[1]
1

Source: Bloomberg, as of May 21, 2025

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