Diversification: The Safe Haven for Your Portfolio in Uncertain Times

In this week's episode, we delve into the big economic news shaping our world and portfolios. We provide updates on the job market, modest gross domestic product (GDP) growth, the Personal Consumption Expenditures price index and an uptick in inflation, new tax policies and the National Deficit, and what the Federal Reserve might be thinking for the rest of this year and beyond (notably, the long-lasting implications of the potential loss of safe haven status in U.S. Treasury bonds). Speakers:Brian Pietrangelo, Managing Director of Investment StrategyGeorge Mateyo, Chief Investment OfficerRajeev Sharma, Managing Director of Fixed IncomeSean Poe, Director of Multi-Strategy Research 01:50 – Weekly unemployment claims were 240,000, an increase of 14,000 from the previous week’s claims 02:22 – The second estimate for first quarter of 2025 GDP came in at -0.2%, a minor improvement from the advance estimate of -0.3%. Contributing factors were reduced consumer spending offset by investment increases. 02:55 – In inflation news, the Personal Consumption Expenditures price index (Core PCE) came in at a 2.5% increase year-over-year; this was the second month of slower results but still above the Fed’s goal of 2.0%. Goods inflation continues to be deflationary, while Services inflation remains higher than desired. 05:19 – The trade war is not over as talks continue to evolve in unpredictable ways, exacerbating some of the swing we’ve seen in market behavior. Legal challenges to the imposition of President Trump’s tariffs further complicate global trade deals, suggesting that a measured and diversified approach to portfolio management is a sound course of action. 08:00 – The U.S. annual deficit sits at $1.9 trillion. Proposed tax cuts from the House of Representative would add as much as $2.6 trillion in borrowing, making a potential recession more challenging to manage. This, in addition to the recent downgrades of the U.S. Sovereign debt, may have negative effects on U.S. Treasuries. 09:38 – Minutes from the Fed’s May Federal Open Market Committee (FOMC) meeting were released this week. Compounding uncertainties have immobilized the Fed from making clear decisions on monetary policy. Two rate cuts are expected for the remainder of 2025, with the first cut potentially at the September FOMC meeting. 12:00 – The 10-year Treasury bond note yield is below 4.5%, which is well below this year’s previous peak, though the bond market is still less volatile than equities in times of economic and earnings uncertainty. Long-term investors are seeking to lock in yields of 5% or more and are considering padding their portfolios with high-quality corporate credit to mitigate future economic fluctuations. 14:40 – A primer on private equity: What it is, and what it looks like today. How might it fit into your investment strategy? We also provide an explanation of private equity secondaries investments and how they can be used. 17:09 – The private equity secondary market is projected to experience a 20%-25% increase in the market from 2024 and would then account for about a third of all private equity transaction value. Newsworthy recent examples of Harvard University and Yale University selling a portion of their private equity holdings to secondaries funds to free up liquidity in anticipation of an increased tax burden and future legal challenges. Additional ResourcesJoin us on June 11 for our Midyear Investment UpdateKey Questions | Key Private Bank Subscribe to our Key Wealth Insights newsletterWeekly Investment Brief Follow us on LinkedIn