Location Strategy Chartbook 06.07.25

As the risk of sustained high tariffs on imports to the US receded in recent weeks, investors have turned their attention to another potential area of concern for the US stock market: rising interest rates.

The nominal yield on 10-year US Treasury bonds rose by 40 basis points in May to 4.4%. That's up from about 3.6% in mid-September. Several factors, including a declining risk of recession, concerns about the path of US government debt, and higher borrowing costs around the world, may have contributed to the increase.

Importantly, stocks' vulnerability to rising interest rates depends more on the reasons yields are increasing than the absolute level of rates, David Kostin, Goldman Sachs Research's chief US equity strategist, writes in the team's report.

The US trade deficit narrowed in April by the most on record on the largest-ever plunge in imports, illustrating an abrupt end to the massive front-loading of goods by some companies ahead of higher tariffs triggered by Trump’s trade war. The gap in goods and services trade shrank 55.5% from the prior month to $61.6 billion, the smallest since 2023 and more than completely reversing the sharp widening that occurred in the first quarter, according to US government data. The median estimate in a Bloomberg survey of economists was for a $66 billion deficit. Imports of goods and services declined a record 16.3% in April, while exports increased 3%.

The May job gains were highly concentrated in healthcare and hospitality. About 80% of the job gains came in those two sectors.

Total jobs added: 139,000

• Healthcare 62,000

• Hospitality 48,000 (restaurants +30k)

• Local gov't 21,000

• Social assist 16,000

• Finance 13,000

• Transport/Warehouse 6,000

• Construction: 4,000

• Information 2,000

Losses

• Federal gov't -22,000 (-7k was postal service)

• Temp help -20,000

• Professional/biz -18,000

• Manufacturing -8,000

• Retail -6,500

Over 12% of US credit card balances are now 90+ days delinquent, the highest percentage since 2011. Student loan delinquencies spiked to 7.7% after the pause on reporting delinquent federal student loans ended. Auto loan delinquencies rose to 5%, a 5-year high.

The global population is aging, with life expectancies rising and fertility rates declining — a scenario often labeled as a "demographic time bomb," in which a shrinking pool of workers struggle to support the economy's growing number of elderly people. However the most effective way to counter the economic impacts of population aging is to extend working lives — and this is already happening, according to a Goldman Sachs Research report.

Median life expectancy in developed economies has risen by 5% since 2000, from 78 to 82 years, while the working-age population (15-64 years) has been shrinking. But despite these trends, the share of the total population that is employed has increased. Since 2000, the effective working life in developed economies has extended by 12%, from 34 to 38 years, writes Kevin Daly, co-head of Central & Eastern Europe, the Middle East, and Africa economics at Goldman Sachs Research, in the team's report.

Included in the “Big, Beautiful” bill passed by the house was a special $4,000 increase in the standard deduction only for taxpayers age 65 and older. In doing so, they would be giving a tax break to the the wealthiest generation. The median household income of $410,000 for 65 to 74 year-olds is over 10x higher than the median household income of those under 35.

And a record 31% of household wealth is now held by Americans that are 70 years of age and older, up from 19% back in 1989. This age group makes up 11% of the US population.

America the avoidable. Donald Trump’s travel ban, stricter border controls, trade war and LGBTQ rights rollback have discouraged global travel to the US, and could end up costing the economy $12.5 billion this year, according to the World Travel & Tourism Council.

Foreign arrivals by air have fallen 2.5% so far this year through April, according to the US International Trade Administration. The biggest drop—10%—came in March, after Trump announced tariffs on Canada, China and Mexico.

The largest U.S. sovereign wealth fund plans to trim its global real estate holdings to reduce its exposure in the office and retail sectors.

The Alaska Permanent Fund's industrial and multifamily properties are performing better, according to board of trustees meeting minutes. By selling off retail and office properties, the fund would increase its proportion of industrial and multifamily real estate, the portfolio balance it prefers. The fund is also looking to reduce its focus on single properties in favor of investing in real estate funds.

The plans by the fund, established in 1976 to preserve and convert Alaska's oil and mineral wealth into a financial resource for all state residents, signals that investors are looking closely at properties that are aging and those overseas that are harder to keep under close watch. It also reflects concern about a lack of office property demand.

With $65 billion in total assets, including about $9.6 billion in real estate property and debt holdings, the fund disclosed it has identified eight assets in the United States and Europe it wants to sell in the next fiscal year, starting in July. In addition, it expects to identify additional properties to sell over the next 24 months.

Fannie Mae reported the number of REOs decreased to 5,236 at the end of Q1 2025, down 11% from 5,895 at the end of the previous quarter, and down 34% year-over-year from 7,971 in Q1 2024. Here is a graph of Fannie Real Estate Owned (REO).

It is important to note that loans in forbearance are counted as delinquent in the various surveys but not reported to the credit agencies.

Here is a graph from the MBA’s National Delinquency Survey through Q1 2025.