Category: Chart of the Week

Know Your Volatility

Fiduciaries, trustees, and institutional investors may be understandably puzzled by recent developments and shifts in tone from U.S. regulators and policymakers regarding digital assets. For those not following the space closely, in recent months:

  • The Department of Labor (DOL) rescinded its 2022 “extreme care” guidance and reaffirmed a neutral stance — emphasizing fiduciary process over product exclusion.2
  • Banking regulators softened their posture by withdrawing supervisory guidance, signaling a shift from structural resistance to conditional tolerance and constructive engagement.3,4,5
  • The SEC approved a diversified, multi-asset crypto ETF — marking a pivotal moment in U.S. regulatory acceptance and product offerings.6
  • At the federal legislative level, bipartisan efforts to codify dollar-backed stablecoins suggest the possibility of a broader strategy to reinforce U.S. monetary leadership in both digital finance and capital markets.7,8
  • At the state level, Texas and New Hampshire have enacted legislation to establish digital asset reserve funds or authorize their state treasurers to invest in digital assets.9

These developments may seem at odds with the long-standing perception that digital assets — particularly Bitcoin — are categorically too volatile and immature for institutional portfolios. While the immaturity label is fair and simply a function of time, the volatility story — while true on an absolute basis — loses a bit of its bite when compared to individual stocks.

The chart above illustrates this point using securities from the S&P 500 (blue) and Russell 2000 (light blue) — benchmarks that underpin equity exposures across many investment portfolios. Since 2020, more than 1,000 individual stocks (purple) included in core S&P 500 and Russell 2000 indices have, on average, exhibited annualized volatility comparable to or exceeding that of Bitcoin — including well-known names such as Tesla, Nvidia, Carvana, Hims & Hers, and JPMorgan Chase.¹ While this is not to suggest Bitcoin’s price should be expected to follow the same price movements of a traditional stock, it does start to address the long-held stereotype of its outsized volatility across market cycles. That said, the relative immaturity of Bitcoin (and all digital assets for that matter) should be considered when assessing the relative volatility versus stocks.

Ultimately, the intent here is not to advocate adoption — this is not an endorsement of digital assets. Rather, the goal is to better understand that recent regulatory, policy, and institutional shifts appear to reflect a more empirically grounded understanding of risk.

It is important to underscore that many of these developments remain provisional. Absent more binding legislation, recent guidance and positions could shift under future administrations. Accordingly, Marquette maintains a cautious approach to digital assets. Fiduciary prudence requires a holistic, portfolio-based risk assessment that considers formal legislation and regulatory frameworks, governance standards, plan-specific objectives, and long-term suitability. Fiduciaries require a durable foundation for evaluating potential portfolio inclusion of asset classes. Given the inherent uncertainty of a transient regulatory landscape — and the varied facts and circumstances across retirement plans — a measured, wait-and-see approach seems reasonable.

1 Bloomberg 260-day volatility as of May 30, 2025; 260-day historical volatility for all assets, respectively.
2 U.S. Department of Labor, Employee Benefits Security Administration. Compliance Assistance Release No. 2025-01: 401(k) Plan Investments in “Cryptocurrencies”. May 28, 2025.
3 Board of Governors of the Federal Reserve System. Federal Reserve Board Announces Withdrawal of Guidance for Banks Related to Crypto-Asset and Dollar Token Activities. Press release, April 24, 2025.
4 Federal Deposit Insurance Corporation. FDIC Clarifies Process for Banks to Engage in Crypto-Related Activities. Press release, March 28, 2025.
5 Office of the Comptroller of the Currency. OCC Clarifies Bank Authority to Engage in Crypto-Asset Custody and Execution Services. Interpretive Letter #1184, May 7, 2025.
6 U.S. Securities and Exchange Commission. Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, to Amend NYSE Arca Rule 8.500-E (Trust Units) and to List and Trade Shares of the Grayscale Digital Large Cap Fund LLC under Amended NYSE Arca Rule 8.500-E (Trust Units). Release No. 34-103364, July 1, 2025.
7 Reuters. U.S. Senate Passes Stablecoin Bill in Milestone for Crypto Industry. June 17, 2025.
8 Bloomberg Government. Texas Gov. Abbott Signs Bill to Create State Bitcoin Reserve. July 1, 2025.
9 New Hampshire General Court. House Bill 302: An Act Relative to Enabling the State Treasury to Invest in Precious Metals and DigitalAssets. Signed May 6, 2025. Effective May 7, 2025.

The One Big Beautiful Chart

Late last week, President Trump signed a sweeping tax and spending package, branded by the White House as the “One Big Beautiful Bill,” aimed at enacting major elements of his domestic agenda. Specifically, the legislation cements the substantial tax reductions introduced during the first Trump term, which were slated to sunset at the end of this year. The package also includes an increase to the cap on the state and local tax deduction, raising it from $10,000 to $40,000. Changes to the child tax credit and estate and gift tax exemption were also included in the legislation. A portion of the bill’s funding comes via reductions to programs including Medicaid and the Supplemental Nutrition Assistance Program.

Forecasts from various organizations suggest the immediate effect of these new policies on U.S. GDP growth is indeterminate. For instance, recent reports from the Tax Policy Center and Yale Budget Lab indicate that the domestic economy may see growth increase by less than 1.0% in the years ahead due to the legislation. These estimates are in stark contrast to those of the White House Council of Economic Advisers, which optimistically predicts a 4.8% boon to U.S. GDP by 2028 thanks to the package. Among the provisions contributing to the legislation’s prospects to boost growth are temporary deductions for tip income and higher defense spending. On the cost side, the legislation may increase federal deficits by $3.4 trillion over the next decade and result in millions losing health coverage according to projections by the nonpartisan Congressional Budget Office. These projections have been challenged by both Republican lawmakers and the White House. While the full economic consequences of the “One Big Beautiful Bill” will be revealed over time, the heated debate surrounding the legislation and the size of the package indicate its overall impact could be meaningful in the years ahead.

Bring Out the Big Guns

NATO has decided to take the phrase “don’t bring a knife to a gun fight” quite literally. Last week at the NATO summit in The Hague, the 32 member countries pledged to increase their defense spending as a percentage of GDP from the current 2% target share to a new 5% target share. The pledge includes spending 3.5% on defense items such as troops and weapons and 1.5% on defense-related initiatives such as critical infrastructure, cybersecurity, and resilience measures. This change comes on the heels of criticism from President Trump regarding the underspending of member nations on security, as well as his ambivalent comments on the U.S. commitment to collective defense under Article 5. Additionally, commitments to the alliance have been reinvigorated given the ongoing war in Ukraine and a desire to combat an increasingly hostile Russia.

This new commitment follows a trend of increased defense spending by NATO member states, as there are now significantly more members achieving the 2% target than in previous years. In 2021, the year prior to Russia’s invasion of Ukraine, only six member states achieved the 2% target, compared to 23 member states last year. Some members of NATO even pledged to spend 3.5% of GDP on defense prior to the rollout of the new 5% target. That said, and as this week’s chart indicates, only one NATO country (Poland) currently spends at that 3.5% level.

While the higher spending guidelines are groundbreaking, there is still significant progress that must be made for members to achieve this new level. For example, simply to meet the previously planned target of at least 3.5% of GDP, Germany would have to spend an extra €689 billion on defense through 2035. Similarly, Italy and France would each need to spend more than €400 billion. This increase in spending may provide near-term tailwinds for European equities, particularly defense stocks as detailed in a previous Chart of the Week. However, higher defense spending could add to already ballooning fiscal deficits in many member states, meaning inflation may remain elevated across Europe. While it remains to be seen if NATO members will achieve the new spending target and what the ultimate impact on financial markets will be as a result of these dynamics, one thing is certain: NATO is no longer willing to not be armed and dangerous.

Oil Pares Gains After U.S. Strikes Iran

Last week, Marquette released a publication detailing the importance of the Strait of Hormuz within the context of the global oil trade given recent tensions in the Middle East. Over the weekend, these tensions escalated materially, with the United States carrying out a bombing campaign against multiple nuclear enrichment facilities in Iran. In response, Iranian officials launched a missile attack on a U.S. military installation in Qatar and have threatened to close the Strait of Hormuz, a measure that would need to be ratified by the country’s parliament and national security council. Experts agree that such an undertaking would be highly problematic for the global economy and China in particular, which accounts for roughly 90% of Iran’s oil exports (around 1.6 million barrels per day). Goldman Sachs estimates that a closure of the strait could push the price of oil to more than $100 per barrel.

Interestingly, despite these developments, oil prices have not moved significantly higher in recent time. Brent crude, the international oil benchmark, did climb above $81 per barrel immediately after the U.S. strikes, but has since dropped back to around $72 per barrel as of this writing. Interestingly, most of this decline occurred after the missile attack on the U.S. airbase in Qatar, which may have led investors to believe that oil flows will not be the primary target of the Iranian military going forward. The current figure of $72 per barrel, while still above the five-year average level for Brent crude oil, is largely in line with where the commodity has traded since 2021. Equity markets do not seem particularly phased by this weekend’s strikes either, with major global stock indices finishing Monday in positive territory. These positive dynamics amid a string of negative headlines likely stem from the fact that the Strait of Hormuz has yet to be officially closed, although analysts have reported a slowdown in shipping navigation through the strait since the U.S. strikes. Clearly, much uncertainty remains related to the situation in the Middle East, and asset prices could see increased volatility in the near term depending on the next moves by any of the countries involved.

Oil Markets in Focus Given Middle East Turmoil

Tensions in the Middle East spiked last week following a major escalation in the conflict between Israel and Iran, raising concerns over the stability of the global energy supply chain. To that point, the Strait of Hormuz — a vital chokepoint for global oil and gas flows that connects the Persian Gulf and the Gulf of Oman — has become increasingly fragile amid new reports of electronic interference with navigation systems and a tanker collision near the strait earlier this week. Roughly 20 million barrels of crude oil pass through the Strait of Hormuz each day, accounting for roughly 27% of the world’s maritime oil trade and 20% of total global oil consumption. Additionally, around 20% of global liquefied natural gas (LNG) is transported through the area, primarily from Qatar. Despite the heightened conflict and concerns that Iran could attempt to block the Strait of Hormuz, tanker traffic has remained relatively stable, with 111 vessels reportedly transiting through the Strait on June 15. This figure is down only slightly from 116 on June 12, and consistent with the recent daily range of 100 to 120 vessels.

Most of the material exported through the Strait of Hormuz is delivered to Asia, with roughly 84% of the crude oil and 83% of the LNG being shipped to the region last year. China, India, Japan, and South Korea accounted for approximately 69% of these flows, making Asia particularly vulnerable to supply shocks. While the U.S. has reduced its reliance on Middle East crude oil imports in recent years, with only 6% of its oil imports coming via the Strait, concerns remain for potential inflationary pressures and global GDP headwinds if regional conflicts escalate further.

In response to recent events, Brent crude oil has climbed to over $78 per barrel, and any further escalation could trigger additional volatility in energy prices and, by extension, global financial markets. Indeed, the Strait of Hormuz remains one of the most strategically significant and sensitive corridors for the global economy and investors should continue to monitor developments within the region given the potential for broader economic impacts.

The Global Economic Outlook

In a report published last week, the Organization for Economic Cooperation and Development sharply lowered its global economic growth outlook, pointing to the disruptive impact of ongoing trade tensions. Global GDP is now projected to grow by 2.9% on a year-over-year basis in 2025, down from an estimate of 3.1% in March. The United States economy is expected to grow by 1.6% this year, which represents a sharp downgrade from the March forecast of 2.2% by the OECD. Indeed, out of the countries outlined in this week’s chart, only India saw its 2025 economic growth estimates revised upward in the most recent OECD projections, with forecasts for the euro area and Japan remaining in line with where they stood in March. These assessments underscore the reality of trade disruptions as major drags on global economic momentum. Further, the OECD emphasized in its report that even a complete rollback of tariffs by the U.S. and other nations would not provide an immediate boost to the global economy due to lingering uncertainty about the direction of future policy.

In addition to trade headwinds, the OECD pointed out that domestic factors are compounding U.S. economic challenges, with immigration restrictions and a shrinking federal workforce contributing to weaker growth prospects. Additionally, despite tariff-generated revenues (which hit an all-time high last month), the U.S. budget deficit is expected to widen as slowing economic activity will likely outweigh any fiscal gains from trade barriers. Inflation in the U.S. will also rise in the near term according to OECD forecasters, which could delay substantive monetary easing by the Federal Reserve until at least 2026. The report cautions that this timeline could be pushed even further if inflation expectations become unmoored. Beyond the immediate economic implications of trade disputes, the OECD raised alarm about mounting global fiscal pressures and urged governments to streamline spending and improve revenue collection by expanding their tax bases. Clearly, policymakers around the world have much to evaluate as we prepare to enter the second half of 2025.

The Hidden Cost of NOI

Capital expenditure is a crucial yet sometimes underappreciated component in real estate underwriting, as it directly eats into the cash flows available to investors. While a given sector may benefit from certain tailwinds (e.g., demographic shifts, technological adoption, etc.), elevated capital expenditure requirements can materially impair the growth and durability of net operating income. This is particularly relevant in spaces like life science, medical office, and data centers, where structural demand is strong but operational and replacement costs are high.

A clear takeaway from this week’s chart is the connection between GDP-driven sectors and elevated capital expenditure burdens, with both the office and hotel spaces standing out as significantly more capital-intensive than other property types. Specifically, the office sector has suffered sharp valuation declines in recent years, but its capital expenditure challenges were apparent even before that correction. Aging building stock, tenant improvement costs, and escalating obsolescence make net operating income growth difficult within the office space, especially for older assets in secondary markets. This structural drag further complicates recovery prospects for the sector in a post-pandemic, hybrid work environment. On the other end of the spectrum are self-storage assets, with capital expenditure at only 7.7% of net operating income. The low capital intensity, scalability, and operational simplicity of the self-storage space make it one of the most capital-efficient sectors within real estate and especially attractive given the uncertain macroeconomic environment.

In conclusion, while sectors like office or retail may exemplify industry innovation or trend leadership, select opportunities still exist within these spaces. Diligent asset selection that focuses on location, tenant quality, lease structure, and physical upgrades can lead to attractive risk-adjusted returns, even within sectors that exhibit higher levels of capital expenditure. In a yield-starved world, nuanced underwriting and asset-level differentiation remain essential when it comes to extracting value from these spaces.

Land of the Rising Yields

For many years, Japan experimented with ultra-loose monetary policy given long-term economic stagnation and persistent deflationary pressures that plagued the nation. Actions related to this policy included the Bank of Japan pushing interest rates lower, the implementation of yield curve control, and the purchase of more than 50% of all outstanding Japanese government bonds by the central bank. Roughly one year ago, however, the Bank of Japan ended both its yield curve control and negative interest rate policies after achieving sustained inflation and wage growth. Unfortunately, policymakers in Japan face an entirely new set of problems today.

As detailed in this week’s chart, yields on long-term Japanese government bonds have surged in recent days following a weak auction outcome, with the nation’s 30-year bond yield climbing to a record of 3.14%. There are many reasons for this spike, including new trade restrictions that pose a dual challenge to the Japanese economy. On one hand, tariffs diminish the likelihood of near-term interest rate increases by the Bank of Japan, thereby boosting demand for short-term debt. At the same time, trade tensions heighten inflation risks, which undermine investor confidence in long-term bonds. These dynamics present a dilemma for the Bank of Japan as it seeks to scale back its bond buying program and signal potential trouble for Japan’s heavily indebted government. To be clear, rising yields in Japan reflect a broader pattern, as long-term borrowing costs have climbed across major economies given investor concerns over the ability of governments to manage large fiscal deficits. Still, Japan finds itself on particularly precarious footing, and its central bank must now contend with inflationary pressures, weaker sentiment, and demographic headwinds.

The Soybean Shuffle

The most recent headlines related to tariffs have been positive, with the U.S. and China reaching a 90-day pause on May 12 and domestic equities surging in response to this news. Despite this reprieve, however, U.S. farmers may still have reason for concern. To that point, current duties on the second highest U.S. agricultural export, soybeans, remain almost as high as those from 2018, a year that saw U.S. soybeans become a major casualty of another trade conflict triggered by American tariffs on Chinese goods. The U.S. soybean industry was hit hard as a result, suffering an immediate loss of market presence in China. This trend can be observed in the chart above. During a recent hearing before the U.S. Senate Finance Committee, the president of the American Soybean Association expressed fears that current trade restrictions could lead to a loss in market share for U.S soybean farmers similar to that of 2018.

China accounts for roughly 60% of global soybean imports and around half of total U.S. soybean exports, meaning tariffs will almost certainly impact U.S. farmers negatively. Additionally, the Chinese government has endeavored to increase its partnership with Brazil, which is currently China’s largest soybean trading partner. Earlier this month, the leaders of both countries met in Beijing to emphasize the importance of the relationship and sign new trade agreements. Even before this summit, Chinese companies have worked to expand infrastructure within Brazil (e.g., building railroads and water ports) with the goal of bolstering the agriculture supply chain. Additionally, one the largest state-owned conglomerates in China, COFCO, is in the process of building an export terminal in the major Brazilian port city of Santos, which is expected to increase capacity from 5 million tons to 14 million tons. This port is key when it comes to the exporting of commodities such as corn, sugar, and soybeans. It remains to be seen how much stronger the trade relationship between China and Brazil will become in the coming years.

In conclusion, recent tariffs have both redefined international trade relationships and underscored the vulnerability of domestic farmers.  Readers should note that uncertainty surrounding the global macroeconomic landscape is likely to persist, and commodities like soybeans could exhibit elevated levels of volatility amid a reshaping of world trade.

The Great Currency Reversal

As a result of policy uncertainty, shifting sentiment, and a potential U.S. economic slowdown, the dollar has moved lower in 2025, amplifying non-U.S. equity returns for domestic investors this year. This week’s chart outlines this dynamic, highlighting the “return differential” between dollar-based and local currency returns for both developed and emerging market indices. The 8.2% differential for the MSCI EAFE Index, which tracks international developed markets, reflects stronger European currencies (e.g., the euro) that have been fueled by positive growth forecasts and increased defense spending (as noted in “Europe on Defense”). These factors have turned modest equity gains in local terms into significant returns for dollar-based investors. Similarly, Japan has seen a stronger yen in recent months. The MSCI Emerging Markets Index has seen a smaller differential than its developed counterpart this year, but U.S. investors have still benefited from currency effects across several emerging countries. The Brazilian real, for instance, has strengthened in 2025 thanks to a 50 basis point rate hike by the nation’s central bank earlier this month, which has attracted increased capital flows. Taiwan has also seen strengthening of its currency in recent days.

While a weaker U.S. dollar has served as a tailwind for domestic investors in non-U.S. equities, risks related to this trend should be noted. For instance, a weaker U.S. dollar can lead to higher import prices, which can exacerbate inflation and reduce the purchasing power of consumers. A weaker greenback can also discourage foreign investment and serve as a signal of a challenged economic environment. Given the current climate and the currency trends detailed above, it is critical that investors remain diversified across both U.S. and non-U.S. markets to reduce exposure to currency-specific risks and enhance portfolio stability amid global economic fluctuations.