Location Strategy Chartbook 06.14.25

Oil prices leaped, and stocks slumped Friday on worries that escalating violence following Israel’s attack on Iranian nuclear and military targets could damage the flow of crude around the world, along with the global economy.

The S&P 500 sank 1.1% and wiped out what had been a modest gain for the week. The Dow Jones Industrial Average dropped 769 points, or 1.8%, and the Nasdaq composite lost 1.3%.

The strongest action was in the oil market, where the price of a barrel of benchmark U.S. crude jumped 7.3% to $72.98. Brent crude, the international standard, rose 7% to $74.23 for a barrel.

Inflation has remained relatively tame recently, and it’s near the Federal Reserve’s target of 2%, but worries are high that it could be set to accelerate because of President Donald Trump’s tariffs.

That sent the yield on the 10-year Treasury up to 4.41% from 4.36% late Thursday. Higher yields can tug down on prices for stocks and other investments, while making it more expensive for U.S. companies and households to borrow money.

A better-than-expected report Friday on sentiment among U.S. consumers also helped drive yields higher. The preliminary report from the University of Michigan said sentiment improved for the first time in six months after Trump put many of his tariffs on pause, while U.S. consumers’ expectations for coming inflation eased.

Bloomberg: You might think the big risk to the US economy right now is President Donald Trump’s trade war. If so, you’d be wrong. There’s something much bigger and far nastier lurking around the corner. A few things, actually. Peter Berezin, chief global investment strategist at BCA Research, says one of those threats is recession.

For years, economists were repeatedly wrong in predicting a downturn as the post-pandemic labor market under President Joe Biden hit half-century records. But the arrival of the Trump administration and its policies, from tariffs to immigration crackdowns, may have finally set the stage for the recession that’s long been predicted. But it could be worse.

If Trump’s proposed tax cut bill (and its trillions of dollars of additional debt) is passed, the US could finally face a debt crisis. The budget deficit is expected to rise to nearly 8% of GDP, up from the current 6.5%, and the percentage of GDP that goes into servicing that debt will rise sharply, too. (This figure has already climbed from around 0.5% of GDP during Trump’s first term to about 3% today.) High debt combined with high interest rates is a toxic and unsustainable mix. Something has to change—and fast. In the meantime, watch out for that recession, which won’t help the debt situation or the stock market. The latter remains grossly overpriced (at least in the US), and if history is any guide, it could easily drop by 25% in a deep recession. How likely is that? “It’s not 100%,” says Berezin. “There’s still a 40% chance where things can go right, and that’s why I’ve been cautioning investors to wait until they see the whites of those recession eyes before turning fully pessimistic.”

The Case for Rate Cuts Is Growing

Evidence is accumulating that inflation, despite tariffs, has been milder than feared, while the labor market might be deteriorating. The Federal Reserve doesn’t have to act when it meets next week. But in their outlook and rhetoric, Fed officials need to acknowledge risks are shifting, says Greg Ip.

After decades of stagnation, the world's supply of nuclear energy is poised to increase significantly in the coming years, according to a report by Goldman Sachs Research analysts Brian Lee and Carly Davenport. By 2040, our analysts forecast that global nuclear generating capacity will rise from 378 gigawatts (GW) to 575 GW, representing an increase in nuclear power's share of the global electricity mix from around 9% to 12%.

The expected increase in generating capacity coincides with a surge in support for nuclear power globally and a spike in investment in nuclear generation. In May, President Donald Trump signed executive orders to accelerate nuclear adoption in the US, aiming to expand nuclear power from around 100 GW today to 400 GW by 2050. Meanwhile, China plans to build 150 nuclear reactors over the next 15 years, with the target of reaching 200 GW of nuclear energy generation by 2035. At the most recent COP29 meeting in November 2024, 31 countries pledged to advance the goal of tripling the world's nuclear generation by 2050.

Paul Tudor Jones sees the US dollar dropping over the next year as short-term interest rates fall sharply, he said. Jones, who founded the $16 billion macro hedge fund Tudor Investment Corp., said the dollar may be 10% lower a year from now as the yield curve steepens. “You know that we are going to cut short-term rates dramatically in the next year,” Jones said Wednesday in an interview with Bloomberg TV. “And you know that the dollar will probably be lower because of it. A lot lower because of it.”

WSJ: Thursday afternoon’s sale of $22 billion in bonds maturing in 2055 won’t break anything. Even so, such widespread attention given to a routine event should be disconcerting—and not just for Americans. Global government debt has mushroomed since the financial crisis and the Covid-19 emergency. Central banks have been less willing to lend a helping hand.

According to an OECD report, sovereign debt in developed countries will reach nearly $59 trillion this year. Central banks will own about $11 trillion of that, down from $15 trillion four years ago. That means actual investors have to fill the gap and also soak up massive issuance. Short-term paper is still desirable, but auctions like today’s 30-year Treasury sale are trickier.

“There’s a global aversion to taking on too much duration—particularly from more indebted countries,” says Peter Boockvar, chief investment officer at Bleakley Financial Group and the writer of The Boock Report, a staple for traders.

Deeply indebted Japan was the scene of a freakout after a weak auction last month. Its longest-term debt recently reached its highest yield ever. Prime Minister Shigeru Ishiba didn’t help with a comment to lawmakers that its fiscal situation is “undoubtedly extremely poor, worse than Greece.”

Despite losing its last top-tier rating, U.S. debt has a major advantage: Dollars are the world’s reserve currency and Treasurys its most liquid asset.

But it has two problems: First, America has by far the largest debt pile in absolute terms. Second, the dollar has been on a losing streak. The trade war, planned ax cuts at a time of high budget deficits and a general loss of “American exceptionalism” all share the blame.

Since the cost of hedging against currency losses is high now, that has made this year painful for foreign investors in Treasurys. Boockvar says this year’s big market event was a rapid spike in the Taiwan dollar. Its bond owners lost the equivalent of almost two years of income in a matter of hours, spooking investors elsewhere in Asia.

Thursday’s auction is a sideshow for some because only buyers like insurers and pension funds dabble much in 30-year bonds. Ten-year notes are far more important for things like mortgage rates.

But the auction is noteworthy because longer-term debt is the most sensitive to concerns about creditworthiness and inflation.

Global investment in nuclear power generation is also increasing: Investment grew at a compound annual growth rate of 14% between 2020 and 2024, following almost five years of no growth in spending.

“This has come on the heels of improving policy support globally, underscored by the growing demand for power and less emission-intensive alternatives in a world that is retiring coal plants at a rate much faster than it is building new ones,” write Lee and Davenport in the team's report.

May’s monthly employment report from the Bureau of Labor Statistics confirmed that the American job market is softer than it appears. But it’s likely not soft enough to move the Federal Reserve to cut interest rates in the near term as the specter of latent inflation looms while uncertain trade policy ripples through the supply chain.

So far, the impact on consumer prices has been subdued. Headline inflation rose less than expected in May to 2.4% year over year, while core inflation, which excludes volatile food and energy categories, remained stable at 2.8% annually, according to the latest Consumer Price Index, released Wednesday.

Though employers added 139,000 new jobs to their payrolls last month, those were disproportionately concentrated in non-cyclical or lower-paying, consumer-spending-driven sectors. Furthermore, downward revisions for March and April showed the market added 95,000 fewer jobs than previously thought.

During the Pandemic Housing Boom, from summer 2020 to spring 2022, the number of active homes for sale in most housing markets plummeted as homebuyer demand quickly absorbed almost everything that came up for sale and sellers had ultimate power.

Fast-forward to the current housing market, and the places where active inventory has rebounded to 2019 levels (due to strained affordability suppressing buyer demand) are now the very places where homebuyers have gained the most power.

At the end of May 2025, national active housing inventory for sale was still -12% below May 2019 levels. However, more and more regional markets are surpassing that threshold.

This list is growing.

• At the end of January 2025, 41 of these 200 major markets were back above pre-pandemic 2019 inventory levels.

• At the end of February 2025, 44 of these 200 major markets were back above pre-pandemic 2019 inventory levels.

• At the end of March 2025, 58 of these 200 major markets were back above pre-pandemic 2019 inventory levels.

• At the end of April 2025, 69 of these 200 major markets were back above pre-pandemic 2019 inventory levels.

• Now, at the latest reading for the end of May 2025, 75 of the 200 markets are above pre-pandemic 2019 inventory levels and ResiClubexpects that count will continue to rise this year.

The U.S. apartment vacancy rate finally peaked at the end of last year and is forecast to maintain downward momentum through 2025 and beyond.

An abundance of new developments in lease-up is expected to drive absorption in coming quarters, likely chipping away at the nation's elevated overall vacancy rate. While rental demand is still growing at an above-average pace, supply additions are projected to fall about 45% this year based on a quickly thinning under-construction pipeline that should help vacancies recede.

The recent decline in overall vacancy is attributable to the higher-quality, four- and five-star apartment segment, where absorption has been strong enough to exceed supply growth. As a result, vacancies for four- and five-star apartments have already dropped 50 basis points from their 2024 year-end peak of 11.7% and are forecast to fall under 10% by the end of this year.

As vacancies compress, many markets are likely to see higher rents in coming quarters. Year-over-year asking rent growth is forecast to accelerate from 1.2% in the first quarter to 2.2% by the end of 2025. However, this forecast calls for overall rent growth in 2025 to come in 50 basis points lower than last quarter's forecast due to weaker economic projections and a lack of acceleration in rent growth anticipated for the first quarter.

Immigration has bolstered apartment demand. What an expected slowdown means in four gateway markets. Rentals in South Florida, Dallas-Fort Worth, LA and Orange County face unique challenges.

Since 2020, more than 80% of the population growth across several major U.S. cities has come from international immigration, which has substantially benefited apartment demand in such markets as South Florida, Dallas-Fort Worth, Los Angeles, and in Orange County, California.

Apartment demand in both South Florida and Dallas-Fort Worth experienced an above-average effect from increased international migration, with international migrants accounting for over 90% of positive population gains in these metropolitan areas since 2020.

While Los Angeles and Orange County saw a lower contribution to apartment demand from international migrants, at just over 70%, these new residents still helped generate exceptional levels of apartment demand in these two markets.

Across these four metropolitan areas, foreign-born households that arrived in the U.S. since 2010 tend to rent at elevated rates. Over 60% of these households are renters, as shown by the blue bars in the above chart.

This renter rate in these areas stands well above that of the native-born population in these areas, which averages around 33% of renter households. This indicates that growth in the foreign-born population has an outsize effect on renter demand relative to the native population growth.