The Economy
U.S. vs Europe: Two Sides of the Same Coin?
- Stagflation vs recession: this is the debate surrounding the trajectory of the U.S. economy.
- The ups and downs of U.S. trade policy continue, but we already know that bond investors impose discipline.
- The One Big Beautiful Bill Act raises questions about the long-term sustainability of debt.
- Europe’s “moment”: how does it respond to the shift in U.S. policy? This time, high hopes come with a new nuance: decisions are a necessity.
- On a geopolitical level, a transition seems to be underway toward a global division of spheres of influence.
- The Fed faces a dilemma, as survey data (more negative) contradict actual data (more optimistic).
- Finally, inflation appears to be under control in the U.S., though many believe only temporarily. In Europe, this concern is less pronounced.
The Markets
The Great Stock Market Rebound
- S&P 500 NR in the U.S. YTD 1.91%; MSCI Europe NR YTD 9.97% (data as of 06/03/2025)
- European stock markets are outperforming the U.S., something that hasn’t happened in a while.
- This trend is accompanied by a relative weakening of the dollar against other currencies, especially the Swiss franc and the euro.
- Q1 2025 earnings reports are moderately favorable, though they have yet to reflect currency movements.
- The big shift is happening in the U.S. bond market, where the 30-year bond (“long bond”) is at 5%. This level also puts pressure on equity valuations (PER).
- So far, high-yield fixed income credit spreads do not anticipate defaults, except in the riskiest segments.
Investment Policy
More Diversification
- May’s rebound has reopened the debate on valuations (PER): they are very demanding in the U.S., less so in Europe.
- The exception lies in European mid- and small-cap companies, which are clearly undervalued.
- EDM fund portfolios have introduced a more conservative bias toward sectors and companies less affected by:
- Tariffs
- The economic cycle
- Excessive valuations
- Prices of long-term public fixed income (debt) investments are clearly subject to investor concerns about the trajectory of the public deficit and its financing.
- European fixed income offers lower yields, but its trajectory raises fewer questions.
- The euro could increase its role as a reserve currency if global investors continue their diversification strategy.
- Gold is a thermometer of global concerns: it is at record highs.
LEGAL CONSIDERATIONS
1) The present information is for advertising and informational purposes only. It is not and cannot be considered investment advice or legal opinion, nor is it intended to replace the necessary advice in this matter and does not constitute an offer to sell or a solicitation of an offer to buy.
2) All opinions and estimates provided are based on sources considered reliable. However, EDM Gestión, SAU, SGIIC cannot guarantee that they are accurate or complete and assumes no responsibility for any loss, direct or indirect, that may result from the use of the information provided in this document.
3) EDM Gestión, SAU, SGIIC warns that past performance is not a reliable indicator of future performance.
4) EDM Gestión, S.A.U SGIIC is a Spanish public limited company registered in the Special Register of Collective Investment Institution Management Companies of the CNMV with number 49 and registered in the Madrid Mercantile Registry, in volume 36,739, folio 52, sheet M-658.326 and CIF: A-58.217.175. Its activity includes, among others, the representation, management, and administration of Spanish-domiciled and legislated Investment Funds and Companies, and the discretionary management of portfolios.
