Since the onset of the pandemic, the commercial real estate market has experienced significant volatility — first benefiting from a post-pandemic surge, then grappling with a sharp downturn, and now showing signs of stabilization. With the third quarter of 2024 marking the first quarter of positive returns after eight consecutive quarters of losses, the fourth quarter performance added to the case that the asset class has found a floor. This newsletter outlines recent improvements not only across traditional sectors but also an expanding set of alternative property sectors. These alternatives, which include data centers, life sciences facilities, self-storage, and senior housing, reflect the changing composition of institutional real estate portfolios and the growing emphasis on diversification beyond the traditional core sectors. We also explore drivers of demand, specific opportunities in alternative real estate, and value-added real estate.
Author: cvernon
Growth to Gold: Wall Street’s Favorite Trade Just Changed
According to the most recent Bank of America Global Fund Manager Survey, gold has surged to the top of the list of the most crowded hedge fund trades, with 49% of respondents identifying a long position in the metal as the highest conviction play on Wall Street. This represents a significant shift in sentiment, as April marks the first month in two years that a long position in the Magnificent Seven technology stocks (i.e., Apple, Amazon, Google, Microsoft, Meta, NVIDIA, Tesla) did not top the list. This pivot reflects rising caution across investors given ongoing market volatility, persistent inflation, and uncertainty around future monetary policy. The move into gold, a traditional safe-haven asset as described in the last edition of our Chart of the Week series, suggests that fund managers are becoming increasingly defensive and seeking protection from potential further deterioration in risk assets. Indeed, the Magnificent Seven basket has fallen roughly 23% on a year-to-date basis as of this writing, and now just 24% of fund managers believe it to be the top trade given elevated valuations and the extent to which these companies are exposed to a global supply chain that has fractured due to tariffs. Conversely, gold has surged more than 28% since the start of 2025 given heightened risk aversion on the part of investors. It is important to remember, however, that gold is not necessarily a viable long-term investment given its lack of cash flows and the extent to which speculation drives its price.
1Q 2025 Market Insights
This video is a recording of a live webinar held April 16 by Marquette’s research team analyzing the first quarter of 2025 (and recent weeks) across the economy and various asset classes as well as themes we’ll be monitoring in the coming months.
Our Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real estate, infrastructure, private equity, and private credit, with presentations by our research analysts and directors.
Featuring:
Greg Leonberger, FSA, EA, MAAA, FCA, Partner, Director of Research
Frank Valle, CFA, CAIA, Associate Director of Fixed Income
Catherine Hillier, Senior Research Analyst
David Hernandez, CFA, Director of Traditional Manager Search
Evan Frazier, CFA, CAIA, Senior Research Analyst
Dennis Yu, Research Analyst
Hayley McCollum, Senior Research Analyst
Chad Sheaffer, CFA, CAIA Senior Research Analyst
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If you have any questions, please send our team an email.
What’s Your Haven? | Who is the “Godfather” of the Bond Market?
No, you are not seeing double. This very special edition of our chart of the week series comes with an added bonus chart with the goal of highlighting key dynamics within fixed income markets that have been top of mind for investors in recent weeks. Read on and enjoy two charts for the price of one!
What’s Your Haven?
Fixed income has historically provided three benefits to investors: Income, diversification, and liquidity. U.S. Treasuries are a pure form of diversification given their limited risk with the 10-year Treasury serving as a bellwether, and these securities are viewed by many as safe havens during periods of market stress. Historically, Treasuries and equities have tended to exhibit low to negative correlations. However, much like returns and volatility, correlations are time-varying. For instance, the historical relationship between stocks and bonds broke down in the aftermath of the COVID-19 crisis, when accommodative monetary policy led to higher levels of inflation and the two asset classes moved in tandem. The same pattern took hold over the last few weeks amidst tariff-induced market volatility, with correlations between stocks and Treasuries increasing and hampering traditional diversification benefits. With Treasury rates recently trading like risk assets, there are other safe haven assets to which investors have turned for insulation against volatility.
Gold is often referred to as a safe haven asset given its status as a precious metal that is viewed as a store of value and a hedge against inflation. Over the last few years, gold has offered favorable diversification relative to risk assets with inflation running hot. It also tends to do well when fears are high. To that point, with the S&P 500 Index down more than 8% on a year-to-date basis, spot gold prices have risen from $2,625/oz to $3,312/oz.¹ All of this being said, gold is not necessarily a good investment as it does not provide cash flows and its price movements are largely driven by speculation. Additionally, the correlation of gold to equities fluctuates over time from somewhat positive to somewhat negative, with material variations over longer investment horizons.
Some currencies are also viewed as safe haven assets, with the classic example being the yen given Japan’s stable political system and ample liquidity. The yen has rallied with stocks down this year, moving from ¥157.20/$ to ¥142.66/$. Diversification benefits from the yen have historically been better than those provided by gold, but they have also waned somewhat in recent years. Currencies also suffer from some of the same issues as gold, including a lack of cash flows and price speculation. As such, most currencies are generally best used as tactical hedges as opposed to long-term portfolio constituents.
Diversification is a critical component of portfolio construction and while Treasuries have historically served as safe havens during market volatility, other assets have offered more compelling diversification benefits in recent weeks. However, the viability of these assets (i.e., gold and currencies) as outright replacements for Treasuries in portfolios is questionable given the points made above.
¹ Bloomberg as of April 16, 2025
Who is the “Godfather” of the Bond Market?
Current global trade tensions beg the question: Can foreign holders of U.S. debt manipulate the Treasury market? Indeed, some have speculated that China sold Treasuries to put upward pressure on yields last week to retaliate against the U.S. for its new tariffs (i.e., causing the U.S. to borrow at higher rates). This action, however, would likely be painful for China as well. If news of significant Treasury sales by China were to circulate, yields would likely spike, and the value of its remaining holdings would fall. The U.S. also has tools to combat such a move, including quantitative easing (i.e., bond purchases) designed to return yields to normal levels. Ultimately, a retaliatory Treasury sale would be a huge risk to China, not to mention the fact that China’s holdings tend to be of a shorter nature and recent pressure has mostly been on the long end of the curve (which sold off by around 50 basis points last week). Might another country be responsible for this movement?
While some Japanese politicians have lobbied for using its country’s Treasury holdings as a tool in trade negotiations, the ruling party has repeatedly emphasized that Japan should not sell its Treasuries to rile the United States. So, while Japan has indeed been a notable seller of U.S. Treasuries in recent weeks, these sales have likely been influenced by other factors. For instance, Japanese life insurers are major holders of long-dated U.S. Treasuries, and these entities could be rotating out of Treasuries given a cautious stance on U.S. policy. Another potential reason for recent sales is Japanese pension plans rotating into European bonds.
In summary, technical signals from non-U.S. investors can certainly influence the Treasury market, but it is unlikely that these players could engage in outright market manipulation. At the end of the day, the Federal Reserve can pull strings to combat Treasury-related turmoil and remains the godfather of the bond market.
Bracing for Stagflation
As markets swirl and stagflation fears mount, what should investors do?
Our newsletter last week outlined the broad context of President Trump’s new tariff policy as well as the most notable market impacts. Granted, the news seems to change daily, as does the market’s reaction; trying to pen a targeted newsletter is an almost worthless endeavor because by the time the ink has dried, markets have shifted due to another policy pivot. In the short term, the omnipresent cloud of uncertainty will continue to drive market volatility and investor sentiment. The best recipe for investors to weather this storm is patience and discipline, both of which can be difficult to come by in the current environment.
As we step back and take a longer-term view of the future, however, the threat of stagflation is becoming more realistic. Coined as a combination of the words “stagnation” and “inflation,” it is an economic backdrop characterized by high inflation, slow economic growth, and in some cases, high unemployment.
In this edition, we examine which asset classes are most exposed to stagflation and which can offer shelter.
The Volatility Roller Coaster
Earlier this week, Marquette published a newsletter detailing the ongoing market volatility caused by the Trump administration’s recent tariff rollout. Indeed, equity markets have reacted sharply to the new trade landscape, with the S&P 500 Index having fallen roughly 11.0% from its February peak as of this writing. While a significant portion of these losses came late last week, this week has seen even more extreme market fluctuations as investors struggled to assess the impact of new trade restrictions on security prices and the global economy. Specifically, the S&P 500 Index opened lower on Monday morning before surging amid rumors that the White House was considering a pause on its reciprocal tariff measures. The Trump administration quickly denied these rumors, and the benchmark would later turn negative before ending the day slightly up from its prior close. Markets opened sharply higher yesterday but steadily lost ground due to souring sentiment and a lack of progress on trade negotiations. Today, equity markets opened slightly lower before skyrocketing after an official announcement of a 90-day pause for reciprocal tariffs on non-retaliating countries. All told, Monday, yesterday, and today saw staggering intra-day price changes in the S&P 500 Index of roughly 8.5%, 7.3%, and 10.8%, respectively (in absolute value terms).
As this week’s chart indicates, price swings of this magnitude have only been exhibited during the most extreme periods in U.S. equity market history, including the Black Monday Crash of 1987 and the Global Financial Crisis. As such, it is imperative that investors navigate the current environment with a high degree of prudence and caution, especially given the likelihood of continued volatility as trade negotiations proceed. It is also helpful to remember that investors have historically been well compensated for bearing equity risk over multi-year periods, and that short-term fluctuations are the price of positive long-term returns. Marquette continues to closely monitor dynamics within global markets and will provide timely updates accordingly. Please reach out to us with any questions.
Trade Turmoil: Assessing the Impact of Tariffs on Markets, the Economy, and Investors
The global trade landscape has been significantly reshaped by a series of aggressive tariffs initiated by President Donald Trump. These measures have elicited strong reactions from market participants and U.S. trade partners alike, leading to elevated levels of market volatility, souring economic sentiment, and strained diplomatic relations. While the situation is ongoing with major developments seemingly arising each day, this paper aims to summarize the events that have led to this point, detail the impact of the trade war on global markets, and provide commentary on what investors might expect in the months ahead.
Europe on Defense
The first 100 days of a presidential administration are typically scrutinized closely as the public develops a sense of the new government’s agenda and top priorities. The second Trump administration is certainly no exception, and the recent flurry of executive orders and tariff proposals has caused significant uncertainty for policymakers and financial markets alike. Trump’s handling of the Russia-Ukraine War has had an especially notable impact. In March, the Trump administration suspended aid to Ukraine after a tense meeting with Ukrainian President Volodymyr Zelenskyy. That decision elicited a strong response from European leaders, who now have a newfound sense of urgency when it comes to rebuilding the continent’s defense capabilities. In recent weeks, the European Commission, the executive branch of the European Union, announced its “ReArm Europe Plan,” complete with a white paper entitled “European Defense Readiness 2030.” These documents emphasize the need for Europe to bolster defense spending and outline an investment plan to do so.
Global markets took note of this dynamic well before the unveiling of the ReArm Europe Plan, with European defense stocks surging as the continent’s relationship with the Trump administration has deteriorated. To that point, the STOXX Europe Total Market Aerospace & Defense index returned roughly 28.9% in the first quarter, with noteworthy contributors including Rheinmetall, a German arms manufacturer, the French military aircraft manufacturer Dassault Aviation, and Leonardo DRS, an Italian aerospace and defense specialist. This is in striking contrast to the market leaders of 2024, including U.S.-based tech giants such as NVIDIA and Microsoft. The Magnificent Seven basket of stocks have returned roughly -16.0% so far in 2025.
While investors are understandably enthusiastic about the prospects of defense spending jumpstarting the European economy, making these defense goals a reality will not be an easy task, especially for European countries such as France that are heavily indebted with a highly taxed citizenry. One thing is for certain: The market’s response to recent defense initiatives in Europe illustrates the importance of maintaining a diversified investment portfolio, as it is difficult to predict the catalysts that will drive performance reversals like the one detailed above.
Checking in on Bitcoin’s Fair Value
In May of 2024, we published a Chart of the Week titled “Is Bitcoin Fairly Valued?” At the time, bitcoin and the broader digital asset space demonstrated mixed performance amid heightened market volatility, shifting liquidity conditions, and geoeconomic uncertainty. Recognizing the challenges in determining bitcoin’s fair value, we applied standard valuation principles to estimate bitcoin’s fundamental value at that time. While bitcoin and the broader digital asset space have once again exhibited mixed performance amid a shifting macroeconomic backdrop, much has changed over the last year and recent developments suggest that a reassessment of bitcoin’s fair value could be timely.
To better understand why this reassessment could be relevant for institutional investors, here is a brief and non-exhaustive recap of the key developments in the U.S. crypto space this year:
- On January 23, the Trump administration issued Executive Order (EO) 14178, Strengthening American Leadership in Digital Financial Technology, signaling a new approach to digital assets and revoking the frameworks and directives established by the Biden administration.
• Within 180 days, the President’s Working Group on Digital Asset Markets, currently chaired by David Sacks, will evaluate and recommend proposals for a federal framework to govern the issuance and operation of digital assets. - On February 5, FDIC Acting Chair Travis Hill and Federal Reserve Governor Michelle Bowman released statements signaling the ongoing reassessment of their organizations’ postures toward the crypto industry — sentiments echoed in recent weeks by officials from the Treasury, DOJ, and SEC.
- On March 6, President Trump signed the EO to establish a U.S. Strategic Bitcoin Reserve and a separate Digital Asset Stockpile; both to be administered and maintained by the Department of the Treasury.
• Both are to be initially funded with assets seized or forfeited in criminal and civil cases.
• Without further executive or legislative action, additional Stockpile assets can only be acquired through forfeiture proceedings and civil money penalties imposed by a government agency.
• The Secretary of the Treasury and the Secretary of Commerce may develop budget-neutral strategies for acquiring additional bitcoin. - As of March 24, 20 states have active legislation advancing the establishment of digital asset reserve funds or diversification of existing public funds with prominent digital assets — with some proposals specifying potential allocations up to 10% of fund assets.
Unsurprisingly, crypto markets responded enthusiastically to the news. By the end of January, the MVDA 10 Index and the MSCI Global Digital Asset Index were both up roughly 10% as bitcoin traded north of $100,000. Then, February arrived, bringing a notable shift in broad market sentiment and volatility, causing digital asset prices to fall alongside public equities. By the end of February, bitcoin was down roughly 18% while some broad crypto indices were down as much as 28%. So where does bitcoin currently stand?
Applying the discounted cash flow (DCF) method used in our prior analysis, bitcoin’s fair relative value range¹ is illustrated above in light teal, with its upper and lower bounds highlighted, respectively, in orange and green. While bitcoin appears to have closed February at undervalued levels, as of March 24, bitcoin appears to be slightly below and advancing toward its fair value range. That said, it is important to clarify that this point-in-time DCF method is just one of several potential valuation approaches, and other estimates may vary. Valuations for both floating fiat currencies and cryptocurrencies are dynamic, constantly adjusting to inflation, nominal yields, and broader macroeconomic conditions. Going forward, future inflation trends and market dynamics will provide further opportunities to validate this fundamental approach.
1The discounted terminal values of bitcoin are based on a discounted cash flow model that incorporates U.S. Treasury yields, inflation rates, and imputed risk premiums.
The Changing Current
The impressive strength of U.S. equities in recent years has drawn significant investment from both domestic and international investors, but a closer look reveals a shift in how investors are attaining exposure to the asset class. The chart above illustrates the cumulative net asset flows for various U.S. equity investment vehicles since 2009 and indicates that a growing number of investors are embracing passive strategies. To that point, more than $2.5 trillion has flowed from active to passive management in the last 15 years, with most of the dollars having been directed toward ETFs.
There are many factors that have contributed to this trend. First, mobile brokerage platforms and improvements in technology have made investing more convenient and cheaper for retail investors, with thousands of low-cost products now available that track major stock indices like the S&P 500. Second, many institutional investors have reallocated portions of their U.S. equity portfolios to passive strategies to save on fees, while seeking higher returns via active management in other asset classes like private equity. Additionally, many active U.S. equity strategies have struggled to keep pace with the broad market. Specifically, just 15% of active U.S. large-cap managers have outperformed the S&P 500 over the last decade due a small handful of companies (i.e., the “Magnificent Seven”) having been responsible for an outsized portion of U.S. equity market returns in recent years. This trend also aligns with what is often referred to as the “paradox of skill,” which states that as the absolute level of skill in a space increases, the relative skill among the players in that space often decreases. While this framework has been applied to everything from the NBA to chess, it may also be partly responsible for the decrease in the return premiums earned via active management in the U.S. equity market. If true, this trend poses interesting questions related to whether similar alpha compression will occur in fast-growing spaces like private markets.