An End of an Era? - Q2 2025

An End of an Era?

In short, the outlook for markets is murky. Yet even the decline of American exceptionalism has its advantages. At the year’s start, capital flooded into the United States, chasing high valuations in seemingly scarce opportunities. Some within the administration argue that too much money has chased too few assets in America for too long. If so, the rebalancing now under way—messy though it may be—could ultimately lead to a healthier distribution of capital. In time, risk premiums might normalize, valuations become more grounded, and returns more evenly shared. American exceptionalism may be fading—but its passing may yet be a prelude, not a requiem.

Additional highlights

• Pension Solutions Monitor: Our analysis of market movements impacting US corporate defined benefit pension plans leads us to estimate that pension funding ratios decreased over the first quarter of 2025. Based on market movements, the average funding ratio is estimated to have decreased from 111.1% to 109.6%.
• Fixed Income: In rates, we have started to build an overweight position in the long-end of the yield curve, after being constructive on the short-end for much of the year. In credit, fledgling signs of decompression have begun, but there is admittedly substantial room to run should rising recession odds get further priced in to credit markets.
• Multi-asset: Gold has a specific role to play in the ongoing policy and geopolitical uncertainty, and so do the broader commodity market and related sectors. Sourcing commodities has been a bottleneck in some form or another since COVID, and proposed policies could extenuate or exacerbate that through production constraints, given the labor and capital underinvestment.
• MSCI Rebalance Predictions: Since Q3 last year, the accuracy of our predictions has steadily risen in each successive quarter. That includes the first rebalance of this year, which contained a total of 57 adds and deletes, of which we accurately predicted 52 of them, yielding an accuracy score of 89—our highest to date. This result brought our cumulative average accuracy to 85 since our first publication.