Monthly CIO View | Strategy Snapshot

Economy

• The preliminary reading of 1Q25 GDP showed the US economy contracted 0.3% annualized, its first negative print since 2022.

• Core PCE inflation moderated to 2.6% YoY in March, but the data predates the harsher than expected tariff roll-out on April 2.

Equities

• The tariff announcement sparked a sharp selloff, but a shift to softer rhetoric fueled a rebound —the S&P 500 fell just 0.7% MoM.

• First-quarter earnings are off to a solid start with S&P 500 earnings up ~10% YoY, but the results don't fully reflect tariff impacts.

Fixed Income

• Despite negative headlines, Treasuries posted a 4th straight month of gains, and the 10-year yield remained near recent averages.

• Municipal bonds continued to underperform as outflows and a record pace of new supply created a technicals-driven sell-off.

Commodities & Currencies

• The US dollar hit a three-year low, falling 4.6% MoM toward its 10-year average as negative sentiment hit US assets.

• Oil prices dropped 18.6% to their lowest level in four years (~$58/barrel) on expectations for weaker demand and oversupply concerns.

Key Year-End 2025 Forecasts and Views

Economy US GDP: ~1.0%

We lowered our growth forecast to ~1.0% due to higher than expected tariffs. While tariff rates may ease, weakened consumer and business confidence poses challenges for growth and inflation. However, a solid labor market should prevent recession. Despite slower growth, the US is set to outperform other advanced economies. Quick trade deals, tax cuts, and Fed action could spark a 2026 rebound.

Bond Market 10-Yr Treasury: 4.25%

Trade policy will create challenges for Fed policy as it balances the risks of the dual mandate, but

officials should deliver three rate cuts by year end. The 10-yr Treasury yield should stay range bound, ending 2025 near 4.25%. We still favor high-quality corporates and municipals for their attractive yields and solid fundamentals. Muni underperformance creates a compelling opportunity.

Equities S&P 500: ~5,800

We lowered our S&P 500 year-end forecast to 5,800 ($250-$255 EPS, 22.5x P/E) to adjust for a softer economic backdrop and uncertain policy outlook. At a sector level, we continue to favor Tech, Industrials, and Health Care. We caution against chasing performance overseas, preferring US stocks for their superior earnings growth. US companies are better positioned to weather tariff fallout.

Dollar EUR/USD: 1.10

The US dollar entered its correction from an elevated position and is still above longer-term

equilibrium levels. Fears of the USD's demise as a reserve currency are overblown. The dollar should find support as growth and interest rate differentials stabilize. Our forecast range for the

euro has been raised to 1.05-1.15 with a target of 1.10 as fiscal stimulus in Europe should growth.

Oil (WTI): ~$65/barrel

Oil is trading at a four-year low, and with the trade war in full swing, demand is likely to weaken

further as global growth becomes more challenged. At the same time, faster than planned

unwinding of OPEC production cuts and new oilfield projects coming online should increase

supply. These evolving dynamics suggest there may be downside risks to our $65 year-end target.

Volatility: Higher

Equity volatility should remain elevated as trade policy dominates headlines. Trade war updates,

negative earnings revisions, weaker economic data, and rapid policy shifts can fuel market

turbulence. In fixed income, evolving Fed rate cut expectations and the debt ceiling can lead to

bouts of volatility. FX volatility is set to stay high as currencies react to incoming trade news.

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Disclosures

US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, generally offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. The US Dollar Index is a measure of the value of the U.S. dollar against six other foreign currencies. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The currency pair EUR/USD indicates how many US dollars (the quote currency) are needed to purchase one euro (the base currency).  WTI crude oil is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude. The S&P 500 Total Return Index is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. The Bloomberg Commodity Index is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific economic sector and are presented herein for illustrative purposes only and should not be considered as the sole basis for an investment decision. Sectors, including tech, are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. All expressions of opinion reflect the judgment of the author and are subject to change. Fixed income securities (or “bonds”) are exposed to various risks including but not limited to credit (risk of default of principal and interest payments), market and liquidity, interest rate, reinvestment, legislative (changes to the tax code), and call risks. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise. Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax-advantaged status. Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Please consult an income tax professional to assess the impact of holding such securities on your tax liability. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.