- Although the US economy showed negative growth in 2025Q1 (-0.2%), the outlook for domestic economic growth remains good. Unemployment is low, companies are making record profits, household income is rising and households are paying down their debt.
- How different is the situation for the US government. Government debt in the US (120%) is starting to reach worrying proportions and is more in line with countries like France (113%) and Italy (135%).
- In addition, government debt in the G7 is not rising as fast anywhere else as in the US. This was enough reason for Moody's to downgrade the US credit rating from AAA to AA1 in May and to lower the outlook from Stable to Negative.
- With unchanged policy, the “Debt to GDP” ratio will be 170% in 2040, and a 1% higher interest rate on government debt will even lead to a “Debt to GDP” ratio of 190%.
- After falling 19% (ytd) below 5,000 on April 8, the S&P 500 has since staged an unprecedentedly strong recovery, with the S&P 500 already above 5,500 (+10%) by the end of April and above 5,850 (+6%) by the end of May.
- As a result of the strong recovery of the S&P 500, equities in the US remain expensive compared to their own history and compared to equities in Japan, the UK and Emerging Markets.
- Positive for US equities is that profit growth continues unabated and share buybacks have not been as high in the past 25 years as they are now.
- The outlook for Gold remains positive. The Dow-to-Gold ratio measures how many ounces of Gold it takes to buy the Dow Jones Industrial Average. The ratio recently broke through the 10-year moving average. Historically a sign for long-term outperformance of Gold versus US equities.
Although the US economy showed negative growth in 2025Q1 (-0.2%), domestic economic growth remained strong. The contraction was entirely caused by a sharp increase in imports. US companies tried to avoid the “reciprocal tariffs” announced by President Trump by quickly building up additional stocks. However, the US domestic economy is still in relatively good shape. Unemployment is low, companies are realizing record profits, household incomes are rising and households are paying down their debts.
For the US Government the situation is completely different. There is often great concern about the unsustainably high government debt in countries such as France (113%) and Italy (135%), but in the US (120%) the government debt is also starting to take on worrying proportions. In addition, government debt in the G7 is nowhere rising as fast as in the US. This was reason enough for Moody's to lower the US credit rating from AAA to AA1 in May and to lower the outlook from Stable to Negative. President Trump wants to finance his announced tax cuts with the proceeds of his "reciprocal tariffs". However, it remains to be seen whether this will succeed. In the meantime, many countries have already announced countermeasures, President Trump has already postponed their implementation and a judge has even declared them illegal because "The President has exceeded his authority". In addition, Government Debt is a dark cloud hanging over the American economy. With no change in policy, the “Debt to GDP” ratio will be 170% in 2040, and a 1% higher interest rate on government debt will even lead to a “Debt to GDP” ratio of 190%. In that sense, President Trump is right, something needs to change quickly in the way the US economy operates.
After the S&P 500 fell 19% (ytd) to below 5,000 on April 8 and officially declared a bear market, there has been an unprecedentedly strong recovery since then. For example, the S&P 500 was already above 5,500 (+10%) at the end of April and above 5,850 (+6%) at the end of May. Last month we wrote that 7 out of the 14 bear markets between 1946 and 2024 were not accompanied by a recession. This time too, the bear market seems to have more to do with the unpredictable policies of President Trump than with an inevitable recession. However, the volatility of that policy remains a major risk for both the stock market and the economy. In line with the returned confidence, the interest rate on US Treasuries also rose significantly in May (+23bp). Apart from the enormous volatility, so far 2025 is not a bad year for investors, with the exception of Oil.
As a result of the strong recovery of the S&P 500, it is also still the case that equities in the US are expensive compared to their own history and compared to other countries and regions. For example, equities in Japan, the UK and Emerging Markets in particular are relatively cheap. However, it remains positive for equities in the US that profit growth continues unabated and that share buybacks in the past 25 years have not been as high as they are now. The outlook for Gold remains positive. The Dow-to-Gold ratio measures how many ounces of Gold are needed to buy the Dow Jones Industrial average. The ratio recently broke through the 10-year moving average, a threshold that in 1931, 1971 and 2005 was the harbinger of a long-term outperformance of Gold compared to US equities.
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