Where Are Stocks and the Economy Going? Ask Bonds
The single best indicator of the direction of the macroeconomy — and, by extension, financial markets — is the term premium.
What’s the term premium?
Photographer: Michael Nagle/Bloomberg
Some of us have been waiting for the other shoe to drop in financial markets since at least 2022. And yet they keep going higher, while bond prices tick lower. Will 2025 be the year there is a correction — or do high asset prices reflect a growing real economy that is on the verge of a major productivity boom because of AI, corporate tax cuts and a wave of deregulation?
No one knows for sure. But I will be looking at a few indicators in 2025 to tell me where financial markets are going. Most of them relate to the bond market, because it is both a window into the overall economy and an important component of how stocks and other risky assets are valued. Data for equities, commodities and currencies can be noisy. Bonds can give a sense of where everything is headed, including government policy.