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The Macro Landscape
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The Observatory

The Macro Landscape

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Prometheus Research
May 08, 2025
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The Macro Landscape
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Welcome to The Observatory. The Observatory is how we at Prometheus monitor the evolution of the economy and financial markets in real-time. The insights provided here are slivers of our research process that are integrated algorithmically into our systems to create rules-based portfolios.

On Monday, we released the complete primer for our Prometheus S&P 500 Program. In celebration of the program’s official launch, we are offering a one-time discount of 38% on our monthly price to annual subscribers. You can avail of this offer at the link below. The offer will expire very soon.

Prometheus S&P Program Offer: 38% Off

We’re not the type of company to constantly push sales and promotions on you, but if you've been part of Prometheus for a while or plan to stay for a while, this is the best deal we have ever offered, and we think you should take advantage of it if it suits your circumstances.

Today, we take stock of the big-picture dynamics across macroeconomic variables and markets. Our observations are as follows:

  • Growth conditions remain stable and positive. There are prospective headwinds for business investment due to tariff uncertainty, but they will take time to materialize.

  • Inflationary pressures have moderated, but remain at odds with the Fed’s objectives. There is room for tariff-induced

  • Liquidity conditions remain supportive of asset markets, with few signs of financial stress.

  • Equity markets do not see significant business cycle pressures, but are secularly and locally expensive.

  • Treasury markets continue to face structural challenges, making rallies self-defeating.

  • Commodity markets have begun to look attractive as the tariffs front-running continues to push forward goods demand in the short term, but like bonds, this may be self-defeating.

The combination of these dynamics creates a backdrop where the expected return on assets is low relative to the significant amount of risk created by geopolitical uncertainty. We share some of the data driving this assessment.

We begin with our GDP nowcast. Our GDP Nowcast economic data across 75 measures of real growth conditions to understand the economic conditions in a timely manner. We share both the current level of the nowcast in blue, along with a diffusion index of the underlying components in red. Currently, 66% of subcomponents are rising, consistent with an expansion:

Growth variables are yet to feel the impacts of tariffs, which will primarily weigh on growth through declining investment. As financial conditions have eased, these investment pressures have declined.

While growth remains modest with downside risks yet to emerge, inflation remains stable. While cooling housing and goods demand has led to some slowing of inflation, inflationary potential remains abundant, as seen by examining nominal spending growth relative to interest expense as a barometer of inflationary potential.

Inflationary pressures remain neutral at this time, with the potential for a price surge induced by tariffs.

While growth and inflation remain muted, liquidity conditions remain abundant. We show how repo activity has been particularly strong in the recent past:

Overall, growth conditions remain positive, and inflation remains modestly above target, with liquidity abundant. Our expectations are for these conditions to persist, barring a self-reinforcing downwards spiral caused by tariff policy uncertainty.

Relative to these fundamental drivers, assets are, by and large, rich in their pricing. Equities have little room for their earnings to surprise to the upside, regardless of tariff outcomes:

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