CBO predicts that the potential labor productivity of the USA will reach a minimum in 2025. Combining the institution's assessment that the fiscal expansion model in the USA is difficult to sustain, in 2025, the USA's output gap will turn downward. The simultaneous rise of US stocks and gold may come to an end, potentially leading to a wave of resonant adjustments.
According to the Zhitong Financial News app, China Securities Co.,Ltd. released a research report stating that in the past 2 years, US stocks and gold have surged simultaneously. In the past 6 instances where US stocks and gold rose for at least 2 years, the USD index declined. Since 2023, there have been two possible reasons for loose liquidity: (1) Non-US central banks cut interest rates before the Federal Reserve, causing a global liquidity spillover effect boosting US stocks and gold. (2) The liquidity released through other channels in the USA offset the Federal Reserve's balance sheet reduction, resulting in substantial liquidity loosening. It is expected that the USA's economy will accelerate its decline in 2025, with USD liquidity reversing and the previous 2-year simultaneous rise of US stocks and gold driven by liquidity expansion experiencing a reversal.
CBO predicts that the potential labor productivity in the usa will reach a low point in 2025. Combining the institutions' determination that the usa's fiscal expansion model is difficult to sustain, the usa's output gap will turn downward in 2025, and the simultaneous rise of US stocks and gold may come to an end, eventually leading to a wave of resonant adjustments.
Main viewpoints of Zhongxin Jiandao are as follows:
In the past 2 years, US stocks and gold have surged simultaneously.
Since 2023, US stocks and gold have surged simultaneously. Cases where US stocks and gold rose for at least 2 years since 1968 have only occurred 6 times in history: 1970.5-1973.1, 1978.4-1980.9, 1985.2-1987.8, 2003.3-2007.10, 2009.3-2011.9, 2016.2-2020.8. If we divide the US economy's status based on the year-on-year GDP and CPI, during this period when US stocks and gold rose simultaneously, the US GDP and CPI resonated downward, resembling the economic status between 1985.2-1987.8.
The common driving factor behind the simultaneous rise of US stocks and gold: liquidity surge.
In the past six occasions when the US stock market and gold rose together, the US Dollar Index declined. It is evident that the common factor behind the simultaneous rise of US stocks and gold is a weak US dollar rather than low interest rates. During the Federal Reserve's rate hike and balance sheet reduction phase in 2023, why is there loose liquidity? china securities co.,ltd. believes there are two possible reasons: (1) Non-US central banks lowered interest rates before the Federal Reserve, and the global liquidity overflow effect boosted US stocks and gold. (2) The liquidity released through other means by the United States counteracts the Federal Reserve's balance sheet reduction, leading to substantial loose liquidity.
As the scale of US bonds issuance contracts, by 2025, the resonance adjustment may bring an end to the simultaneous rise of US stocks and gold. When will the simultaneous rise of US stocks and gold end? Three important observed variables: (1) The simultaneous rise of US stocks and gold often coincides with a turning point in the US core CPI. (2) The downward trend of the US Dollar Index reverses. (3) The potential labor productivity in the United States tends to rebound after hitting bottom.
Future outlook: As the scale of US bonds issuance contracts, by 2025, the resonance adjustment may bring an end to the simultaneous rise of US stocks and gold. If we consider the states of GDP and CPI, this round of simultaneous rise of US stocks and gold is similar to the period from February 1985 to August 1987, but there will be differences after the simultaneous rise ends. The US unemployment rate continued to rise in July this year, triggering the Sam Law, and the US fiscal deficit in September is at its lowest level in the past 4 years. The latest projection by the US Treasury Department forecasts a decrease in the US net issuance scale to $546 billion in Q4 2024, and an expected $823 billion in Q1 2025. The pattern of US fiscal expansion since 2023 is unlikely to be sustainable.
Therefore, the core factors that drove the rise of the US stock market in the 1990s will no longer apply this time. The US economy and inflation this time rely on borrowing and money printing to sustain. After losing fiscal support, it is expected that the US economy will accelerate its downturn by 2025, the US dollar liquidity will reverse, and the resonance rally in US stocks and gold driven by liquidity expansion in the past 2 years will experience a reversal. It is recommended to observe changes in the net issuance of US bonds and the employment market in the US to make appropriate confirmation on the right side. In terms of potential labor productivity, the Congressional Budget Office predicts that the potential labor productivity in the US will hit a low point in 2025, at which time the simultaneous rise of US stocks and gold may also come to an end. Combining the agency's assessment that the US fiscal expansion pattern is unsustainable, the US output gap is projected to turn downward in 2025, eventually leading to a potential resonance adjustment in US stocks and gold.
