Rising Term Premiums Could End This Bull Market
Expectations for more market gains in 2025 are high even after the best two-year stock market return in a generation. That’s a sign of market froth even as the market’s love affair with duration has begun to erode as evidenced by higher term premiums.
Photographer: Michael Nagle/BloombergI have been fairly consistent during this particular Federal Reserve interest-rate cycle: “No Landing” is a bad outcome because lends itself to a hard boom and bust cycle. That bust could be closer than we think. Even as everyone is cheering the resilience of the US economy and expecting another blockbuster year of stock gains, alarm bells are going off with a measure called the term premium that suggest a wicked reversal of fortune is coming.
Let’s talk about what all this means for your portfolio. Hint: it’s still a “wait until you see the whites of the recession’s eyes” action plan. But my confidence that a dramatic asset re-allocation is coming has increased. As a consequence, I’m more bearish on equities than bullish. I’ll outline the points that have led me to this conclusion.