Chart of the Week

Economic policy has become the defining feature in our 2025 outlook. U.S. tariff increases have been unexpectedly aggressive and, in our view, should be seen as a substantial tax increase. From this viewpoint, the chart above provides historical perspective on the magnitude of the increase as the 2025 tariffs — estimated at roughly 0.8% of GDP — are among the top three tax hikes of the past 60 years.

However, we believe key supports will allow the U.S. economy to avoid a recession and stage a mild recovery from late 2025 through 2026. We also expect more positive forces to kick in late in 2025, including tax cuts, lower short-term interest rates, and improved purchasing power from oil-price declines and solid real (inflation-adjusted) income growth.

We view the U.S. economy as better positioned to weather tariffs than economies abroad. The U.S. boasts structural advantages like a vibrant technology sector, less reliance on exports, and comparatively stronger fiscal stimulus. We think 2025 offers long-term investors an opportunity for increased exposure to high-quality U.S. assets, such as U.S. Large and Mid Cap Equities and Investment Grade Credit.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. These risks are heightened in emerging markets. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates.

Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market.

Investment Grade bonds - A rating that indicates that a bond has a relatively low risk of default. Bond rating firms, such as Standard & Poor's, use different designations consisting of upper- and lower-case letters 'A' and 'B' to identify a bond's credit quality rating. 'AAA' and 'AA' (high credit quality) and 'A' and 'BBB' (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations ('BB', 'B', 'CCC', etc.) are considered low credit quality, and are commonly referred to as "junk bonds".

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