As we move through the middle of a fiscal reckoning in the U.S., investors face a shifting macro environment shaped by spending cuts, tariffs and recessionary pressures. In my latest quarterly outlook, I discuss where we are in the cycle, what markets may still be underestimating, and where I’m seeing both risk and opportunity.
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Fiscal reckoning is here: The U.S. is enacting spending cuts and tariffs that may reduce the deficit by 3% of GDP—roughly $1 trillion—leading to recessionary pressure.
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Gold and bitcoin remain in bull markets: They continue to benefit from de-dollarization, stimulated by defense uncertainty in Europe and tariff unpredictability.
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Tech valuations have reset: Semiconductors and growth stocks look more attractive after a major repricing since last summer. Nvidia is now trading around 20x forward earnings.
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India and international equities are gaining momentum: As the U.S. economy slows, global stimulus efforts are accelerating elsewhere, and India remains a top conviction idea.
A Fiscal Turning Point: How We Cut $1T
We’re now in the midst of what I’ve been calling a fiscal reckoning. Following years of stimulus and deficit spending, the U.S. is transitioning from a “two feet on the gas” economy to a more austere fiscal policy. Last year, the deficit stood at 6.4% of GDP. My base case is that this shrinks by 3% of GDP, or about $1 trillion, through a combination of spending cuts, tax increases and tariffs. Some assumptions and estimates that help us get there:
- 2 million job losses (400,000 federal workers, 1.6 million contractors): $125 billion
- Waste, fraud, and abuse savings: $100 billion
- Tariff revenue increases: $250 billion (conservative compared to estimates of $600–800 billion)
- Policy rollbacks like ending the Inflation Reduction Act ($65B), reversing Medicaid expansion ($200B), cutting 10% of Pentagon spending ($80B), and modest corporate tax hikes ($55B)
The implications are recessionary, with a potential rise in unemployment to 4.5–5% and pressure on corporate earnings. We’ll start seeing this reflected in forward guidance coming out in the Q2 earnings season, and this lower growth will lower inflation. This gives the Fed room to cut rates, and my expectation is for cuts of up to 200 basis points in 2025.
How to Invest:
- Stay invested, but diversified—this is a process, not a moment.
- While a slowdown will likely hit in the second half of 2025, buying should probably start in Q2.
Gold and Bitcoin: Long-Term Bull Markets, Short-Term Caution
Both gold and bitcoin continue to perform well in this environment. Gold has moved above $3,000 and has been the best-performing major asset over the past year. Bitcoin is hovering around $80,000, despite a 10-15% pullback YTD.
Gold and Bitcoin Shine as Top Performers
1-Year Return of Various Asset Classes
Gold continues to benefit from de-dollarization. Central bank accumulation, defense uncertainty in Europe and tariff policy volatility are driving demand for an alternative to the U.S. dollar. That said, I wouldn’t add too much to gold at these levels. It’s above its 200-day moving average, so while I remain long-term bullish, I wouldn’t be surprised to see a bit of correction.
Bitcoin also remains a high-conviction holding in my view, despite its increased correlation with the Nasdaq in the post-COVID era. That makes the diversification case trickier, though not invalid. What’s notable is that bitcoin now outperforms the Nasdaq over nearly every time period, despite recent volatility.
How to Invest:
- Hold gold, but be ready for a pullback.
- Maintain long-term exposure to bitcoin; adoption continues to grow for store of value and diversification.
Semiconductors Attractively Valued After a Hard Reset
Last summer, we warned that growth stocks—especially in tech—were extremely overvalued, and I called for reduced exposure. That view played out. Since then, growth has underperformed, and the market has begun to normalize.
Nvidia’s forward P/E has dropped to around 20x, and after about a 30% correction, it now looks far more reasonable relative to its earnings trajectory.
NVIDIA Valuations Now Reasonable
How to Invest:
- Revisit semiconductors, which offer attractive value.
- Seek exposure to AI Phase 2 infrastructure plays, including utilities and energy assets.
India: A Structural Growth Story with Stronger Momentum
The global growth baton is being passed. As the U.S. tightens, Europe is adding fiscal stimulus and China is also stimulating. I believe India remains the most compelling, long-term macro growth story. Following a market correction in late 2024, I believe it’s a good time to increase exposure.
India recently outperformed the S&P 500, and while valuations are high, the P/E-to-growth ratio remains attractive. The Indian economy is not dependent on U.S. exports, and in fact, imports more than it exports. Its growth trajectory is powered by a rising middle class, a strong equity culture and its serving as a technology and services base for global corporations.
How to Invest:
- Increase exposure to India. Its macro story remains intact following its Q4 2024 correction.
- We favor exposure to growth sectors and digital innovation.
Key Takeaways
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Fiscal reckoning and recession risk: Stay diversified as markets adjust to a $1 trillion spending cut. Avoid concentrated U.S. equity bets and prepare for continued volatility.
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Cautiously bullish gold and bitcoin: Maintain long-term positions in gold and bitcoin. Both remain key hedges amid fiscal instability and shifting global currency dynamics.
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Semiconductors valuations normalize: Reengage selectively with growth and semiconductor stocks as prices reset. Consider energy and infrastructure as phase-two AI beneficiaries.
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India attractive following correction: Increase exposure to India as a core, long-term allocation. The country’s growth is domestically driven and less tied to U.S. economic cycles.
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