$SPX500 dropped almost 2 percent on Friday due to disappointing US economic data.

The Michigan consumer sentiment survey fell; new housing starts and existing home sales were down; and the S&P Global US Purchasing Manager Index (a measure of the rate of economic growth) hit a 17-month low.

It appears that US government job cuts are hitting consumer sentiment. Elon Musk’s Doge department could end up cutting 300-400,000 jobs, which could result in a total increase in unemployment of 1 million workers.
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If the government layoffs continue, this could be good for US bonds because the US budget deficit will then stay under control in the medium run. However, an increase in unemployment would be bad for the US economy in the short run. The US dollar could decline, while defensive sectors such as Staples and Healthcare could benefit.

While the US economy is slowing down, the euro area is doing a little better, at least in relative terms.

Europe has a bigger manufacturing sector as a share of the economy than the US. It thus comes as good news for Europe that the global manufacturing cycle is improving. Euro area manufacturing growth hit a 9-month high in February.

It is also positive for Europe that the outcome of the German election implies the next German government will probably expand the budget deficit, which can be expected to boost the German and European economies.

Overall, 2025 is shaping up to be a year of US underperformance. US stocks and the US dollar are expensive. This expensiveness could be sustained as long as the US outperformed other economies, but now the economic trend in the US appears to be worsening.

At the same time, non-US markets are reasonably valued, and economic trends outside the US appear to be improving. Even Trump’s tariffs may turn out to be a paper tiger. If the US economy weakens further, Trump may be constrained in how aggressive he can go with tariffs for fear of increasing inflation in the US.

I have added more exposure to a European economic recovery in the portfolio by reducing defensive exposure and adding cheap cyclicals.

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Vonovia and Cellnex were sold, Akzo Nobel and Elis bought.