.jpg){kind=avatar}
Macro + public markets
- The outlook for the U.S. economy has been upended by trade policy, with business and consumer confidence declining amid tariff-driven uncertainty. Still, activity has remained solid, and the labor market continues to appear resilient as businesses are reticent to lay off workers. The ability for consumers to persevere despite higher prices, which will likely begin to bite early this summer, remains the operative question. We continue to believe slower economic growth, but not a recession, is the likeliest outcome for 2025.
- Long-term U.S. rates are more volatile in the face of shifting tariff policy and the prospect that the “Big Beautiful Bill” will push U.S. budget deficits wider. The divorce between U.S. rates and the U.S. dollar is an alarming trend for bond investors, who have been consistently disappointed by duration exposure.
- U.S. equities have charted a wild ride in 2025, with the S&P 500 briefly entering a bear market in early April before rebounding aggressively. With valuations still near historic highs and tariff policy weighing on earnings growth prospects for large multinationals, the outlook for public stocks is murky.
Private markets
- In U.S. private equity, the recovery in lower/core middle market deal activity has outpaced broader M&A. This trend may continue as domestically oriented midsize firms look relatively more attractive given the tariff landscape. Middle market upside is further supported by the prevalence of sponsor-to-sponsor exits, wherein middle market general partners (GPs) sell upstream to larger sponsors, who currently hold massive dry powder and pay a premium versus corporate acquirers.
- The secular case for private credit remains firm. Lending continues to shift from banks to nonbanks, and private credit stands to take further market share should public credit markets remain volatile. As direct lending has matured, the market has become more segmented, with different strategies presenting unique and potentially complementary risk characteristics.
- The rebound in U.S. commercial real estate activity was delayed in the first quarter, as policy uncertainty and volatile rates challenged dealmaking. Property values have troughed but are unlikely to rebound materially given the higher-for-longer rate environment.
Portfolio construction
- Stock-bond correlation is at a 75-year high. The era of easy diversification has ended, delivering a new paradigm for portfolio construction.
- Over the past 20 years, allocating to private markets was transformative for portfolios. The criticality of alternatives for portfolios will only grow over the next two decades, but as the space matures, investors will likely need more than simply broad exposure. To unlock the same edge, investors must dig deeper, targeting the right corners of the private market landscape.
