Navigating Uncertainty: Nominal Drawdowns and a Bull Case Scenario for a Global 60/40 Portfolio in 2025
By Kyle Boston, Chief Investment Officer, First Coast Financial Group

Foreword

The year 2025 stands at the crossroads of significant shifts in U.S. trade, currency, and debt policies. In the pages that follow, our team explores a range of potential worst-case scenarios that could roil global markets under these new policy trajectories. As CIO, I believe that examining even the direst possibilities is a vital exercise. The scenarios in this report are plausible outcomes based on emerging policy risks – trade disruptions, currency instability, and debt turbulence – each examined through a rigorous lens. However, it must be emphasized that these are not predictions of what will definitely happen. Rather, they are analytical what-ifs to help investors and policymakers stress-test their strategies against severe market conditions.

While the tone of the analysis is cautious, we remain optimistic that foresight and preparation can mitigate risks. The goal is to spark thoughtful planning: by contemplating worst-case scenarios now, we better position ourselves to weather any storms and even to capitalize on opportunities that may emerge.

Bull Case Outlook (Early Scenario Consideration)

Even as we examine downside risks, it is important to consider a cautiously optimistic scenario for 2025. In this bull case, global markets could benefit from:

• Easing Trade Tensions: Global trade volumes begin to recover¹.
• Coordinated Policy Responses: Major economies engage in synchronized fiscal and monetary support².
• Easing Inflation: Inflation moderates in key markets, especially the U.S.².
• Supportive Central Banks: With inflation cooling, central banks adopt dovish stances².

Market Implications: Equities could deliver +5% to +15% gains³, with bond markets also contributing positively. The classic 60/40 portfolio might generate mid- to high-single-digit returns, supported by falling yields and rebounding equity markets. The globally diversified portfolio could mirror its post-2022 rebound, which delivered ~29.7% cumulative returns over two years⁴.

Abstract

This paper explores nominal drawdown risk for a global 60/40 portfolio in 2025 in response to U.S. policy shifts championed by Dr. Stephen Miran⁵. It models mild, moderate, and severe scenarios using analogues such as the 1985 Plaza Accord, the 2018–2019 trade war, and 1970s stagflation, and evaluates asset class outcomes across U.S. and ex-U.S. markets.

Nominal Drawdown Risk for a Global 60/40 Portfolio in 2025

Policy Background: Tariffs, Miran’s Policy Blueprint, and 2025 Implementation

Dr. Stephen Miran – now Chairman of the Council of Economic Advisers – authored a sweeping policy blueprint in late 2024 (nicknamed the “Mar-a-Lago Accord”) calling for a sharp U.S. dollar devaluation alongside an overhaul of trade, debt, and security arrangements⁵⁹. Key pillars of Miran’s plan include: (1) Tariffs to generate revenue and leverage trade partners; (2) Currency realignment (coordinated or unilateral) to correct the dollar’s overvaluation; and (3) Sovereign debt adjustments to extend U.S. debt maturities via allies. The ultimate goal is to ease America’s debt burden and revive domestic manufacturing competitiveness⁹. Miran argues that decades of an “exorbitant privilege” dollar have hollowed out U.S. industry by making exports uncompetitive⁷. His blueprint flips conventional wisdom by framing the dollar’s reserve-currency status as a liability undermining the industrial base, rather than an unalloyed advantage⁸.

Tariffs as Leverage

In Miran’s framework, tariffs are multipurpose tools, not mere protectionism. First, revenue generation is crucial – with pre-2018 U.S. tariff rates far below “optimal” levels, higher import duties could raise trillions to fund priorities (such as extending expiring tax cuts)⁶. Second, tariffs serve as economic leverage: during the 2018–19 trade war, the burden of U.S. tariffs fell largely on China via a weaker yuan, effectively transferring wealth from the exporter to the U.S. Treasury⁶. In fact, as China’s currency depreciated, its real purchasing power fell, meaning Chinese firms and consumers “paid for” the tariffs while the U.S. pocketed the revenue⁶. This mechanism kept U.S. inflation muted in 2018–2019 despite tariff hikes⁶. Third, tariffs can be a foreign-policy weapon. Miran proposed an aggressive escalating tariff on China (e.g. a perpetual 2% monthly increase) to pressure compliance¹¹. Even U.S. allies would not be spared: “Countries that want to be inside the defense umbrella must also be inside the fair trade umbrella,” Miran bluntly stated⁵. In other words, allies would face tariffs unless they boost defense spending and agree to adjust their currencies. Tariffs are thus envisioned as the “Leatherman” of the policy toolkit – versatile tools to enforce both economic and geopolitical objectives⁶. Notably, Miran contends that if tariff impacts are offset by currency moves, they need not stoke inflation or severely hurt U.S. consumers⁵. Historical precedent supports this: in 2018–2019 the dollar appreciated against other currencies, neutralizing much of the consumer price impact⁶.

Markets Perspective: The 2018–19 tariff conflict provides a partial playbook. During that episode, trade tensions and Fed tightening spurred volatility – the S&P 500 nearly fell 20% in late 2018 – but a truce and Fed rate cuts in 2019 helped markets recover. However, the current 2025 tariff escalation is broader (affecting allies and adversaries alike) and potentially more severe (with mooted 50–60% tariff rates versus 10–25% last time). Investors might recall August 2019, when a sudden escalation (China allowed the yuan to weaken past 7.0 and the U.S. Treasury officially labeled China a currency manipulator) sent shockwaves through markets⁷. A comparable or larger shock is plausible now if negotiations falter. On the positive side, 2019 also showed that ceasefires or progress toward a deal can spark relief rallies – for example, the late-2019 “Phase One” tariff truce boosted equities and eased volatility. We may similarly see brief market rebounds in 2025 on news of tariff pauses or currency agreements – though such rallies could be fleeting if underlying issues remain unresolved.

Currency Realignment (“Mar-a-Lago Accord”)

Miran’s blueprint next targets what he sees as persistently misaligned exchange rates. The plan harkens back to the 1985 Plaza Accord (when major economies coordinated to weaken the dollar) but on a grander scale⁹. The so-called Mar-a-Lago Accord would pressure U.S. allies to strengthen their currencies versus the dollar, effectively devaluing the USD in a controlled manner⁹. By making other currencies dearer, U.S. exports would gain competitiveness while imports become costlier, helping shrink trade deficits. Miran suggests the U.S. could pursue this even unilaterally if needed – for example, via direct FX intervention or legal tools to label and counteract currency manipulators. However, a multilateral approach is preferred. His writings describe using both carrots and sticks: tariffs as the stick to bring countries to the table, and security guarantees as a bargaining chip¹². In essence, nations benefiting from the U.S. security umbrella (e.g. NATO allies, Japan) would be induced to revalue their currencies and to buy more U.S. debt as a form of burden-sharing¹². This echoes the idea of a new accord potentially negotiated at President Trump’s Mar-a-Lago resort. Indeed, as Miran took office, Washington circles buzzed with talk of a potential Palm Beach currency deal¹². A credible currency agreement – even a limited one among key countries – would likely mark a turning point, smoothing the dollar’s descent and reducing volatility⁹¹².

Sovereign Debt Adjustments

The third pillar of the blueprint addresses U.S. debt sustainability. Miran and others note that America’s role as supplier of global reserve assets (Treasuries) is stretching U.S. finances thin⁵. One bold proposal is to restructure foreign-held U.S. debt into ultra-long maturities. In practice, allies holding large FX reserves of Treasuries would be asked (or compelled) to swap their short-term T-bills for 50-year or even 100-year bonds. This would push out U.S. refinancing needs and lock in low rates⁹. Miran argues this could even involve negotiated exchanges using zero-coupon bonds to cut near-term interest outlays⁹. Essentially, U.S. security partners would help fund the U.S. by lending long-term: as Miran put it, countries “inside the security zone should fund it by buying Treasuries” – and *“unless you swap your bills for bonds, tariffs will keep you out”*¹². This underscores how tightly the debt strategy is linked to the trade and security pieces of the plan. Other debt-related ideas include creation of a U.S. sovereign wealth fund (using tariff revenues and asset sales to invest in strategic industries)⁹ and even revaluing gold reserves to strengthen the U.S. balance sheet⁹. In total, Miran’s blueprint envisions a wholesale restructuring of U.S. obligations and global financial flows – effectively shifting some of the U.S. debt burden onto allies.

2025 Partial Execution of the Plan

While Miran’s “global reset” blueprint is ambitious, only parts of it are being executed so far in 2025. The U.S. has imposed sweeping new tariffs (10% on all imports, with punitive rates above 50% on certain countries like China), aiming to force trading partners into negotiations. This aggressive opening gambit has injected significant uncertainty into markets. A comprehensive multilateral accord has yet to materialize, but elements of Miran’s strategy are influencing policy (e.g. discussions of issuing ultra-long bonds, calls for allies to support the dollar). The following scenarios consider how global markets might react under different outcomes, from an optimistic partial resolution to a severe stagflationary spiral.

Table 1 below summarizes projected peak-to-trough declines under three scenarios, based on historical analogues and current market behavior¹³,¹⁴. All figures are nominal (not inflation-adjusted) percentage drawdowns from the portfolio’s recent peak (end-2024 baseline), assuming a globally diversified 60/40 portfolio (roughly 60% equity, 40% bonds, with about half the equity in U.S. stocks and half international, and a mix of U.S. and global bonds). These estimates illustrate a range of risk; actual outcomes will of course vary.

Scenario (2025)	Global 60/40	U.S. Equities	Int’l Dev. Equities	EM Equities	U.S. Bonds	Int’l Bonds
Mild – Partial Resolution	~–10%	–10%	–8%	–12%	–3%	0% to –2%
Moderate – Protracted Conflict	~–20%	–20%	–18%	–25%	–5% to –7%	–3% to –5%
Severe – Stagflation Shock	~–30%	–30%	–25%	–35%	–10% to –15%	–8% to –10%

Table 1: Projected Nominal Peak-to-Trough Drawdowns for a Global 60/40 Portfolio and Key Asset Classes under Three 2025 Scenarios. These estimates are informed by historical episodes (e.g., the Plaza Accord, the 2018 trade war, 1970s stagflation) and current market behavior¹³,¹⁴.

Mild Scenario – Partial Resolution

In this optimistic scenario, the U.S. and major trading partners reach a partial deal by mid-2025 that cools down the trade war. Perhaps a mini “Mar-a-Lago” Accord is achieved with key allies: Europe, Japan, and others agree to modest currency realignments (e.g. a one-time 5–10% appreciation against the USD) and to purchase more long-term U.S. Treasuries, in exchange for the U.S. suspending further tariffs and rolling back most new tariffs. China might not fully acquiesce, but could agree to resume negotiations, with both sides pausing escalation (similar to the tariff truces of 2019). In this scenario, confidence returns to markets in the second half of 2025. Equities would likely find a bottom after a correction and then rebound. The global 60/40 portfolio might see a peak drawdown of around –10% in total (roughly the drawdown seen to date), followed by some recovery by year-end. U.S. equities could end perhaps only 5–10% below their prior highs (a correction rather than a bear market). International developed stocks might fare slightly better, down about –8% at worst, as the removal of tariff threats and a somewhat stronger euro/yen bolster sentiment. Emerging-market equities would still be down more (perhaps –12% at the trough) because uncertainty around China lingers and their initial declines were steeper, but they too would bounce on any U.S.–China ceasefire. In fixed income, a mild scenario likely means the Fed enacts a couple of precautionary rate cuts (as insurance) but inflation doesn’t spike – an environment where bonds stabilize or even rally. U.S. bond losses would probably max out around –3% (they’re already near that level), and bonds could finish flat for the year as yields ease back down once trade tensions ebb. International bonds might end flat to slightly negative, as safe-haven currency strength (e.g. CHF appreciation) reverses when risk appetite returns, slightly denting unhedged returns. Overall, in a mild scenario the 60/40’s ~–10% drawdown would mark the low, and by year-end the portfolio could even be near breakeven or only a mid-single-digit loss if markets rally in the second half. This scenario essentially assumes history rhymes with 2019’s pattern – a sharp but brief market dip followed by a recovery driven by policy compromise. It is contingent on proactive policy adjustments: Miran’s team settling for a partial victory and avoiding the most extreme measures, and the Fed providing timely support. Key markers: de-escalation in tariff rhetoric, announcements of new trade deals or currency accords, and inflation staying contained (allowing central banks to remain accommodative).

Moderate Scenario – Protracted Conflict, Limited Recession

In the moderate (base-case) scenario, the tariff war drags on through 2025 without a clear resolution, but also without devolving into complete breakdown. The U.S. implements most of Miran’s blueprint gradually: high tariffs remain in place all year, some allies strike separate deals (preventing an all-against-all trade war and largely isolating China and a few others), and the U.S. continues to pressure for currency adjustments, which occur unevenly. The result is a slowing global economy – possibly a mild U.S. recession by late 2025, and recessions in parts of Europe – but not a financial crisis or runaway inflation. It’s a grinding scenario of weaker corporate earnings, cautious investment, and choppy markets. Under these conditions, equity markets would likely fall into a moderate bear market. We project U.S. equities could retrench on the order of –20% from their peak (roughly in line with a typical recessionary bear market). International developed stocks might decline similarly (perhaps –18% to –20%), with their currency gains offsetting a portion of local price declines. EM equities could suffer more (maybe –25% at trough), given their higher volatility and potential for idiosyncratic issues (e.g. some EM central banks would cut rates, but there could be isolated EM credit crises or sovereign stresses). Thus, the overall global equity portion (60% of the portfolio) might be down roughly 0.6 * –20% ≈ –12%. On the bond side, in a moderate scenario central banks would be easing policy to combat the slowdown, but concurrently, persistent tariff-related cost inflation (headline CPI perhaps running 4–5% for a time due to import prices) might keep long-term yields from falling much. We anticipate U.S. bonds could see perhaps a –5% to –7% drawdown at worst in this scenario (if yields climb further before eventually stabilizing). They might recover some late in the year if recession fears start to outweigh inflation fears, but from peak to trough a mid-single-digit loss is plausible (for instance, if the 10-year yield briefly rises to ~4.5–5% on debt supply and credibility concerns before retreating). International bonds might lose ~3–5% in USD terms, especially if some ally currencies (euro, yen) weaken back somewhat mid-year when those countries cut rates or intervene to prevent excessive appreciation. Put together, the 40% bond sleeve might drag the total portfolio by around 2 percentage points. Summing up, a moderate scenario could see the 60/40 portfolio’s peak-to-trough drawdown around –20%, which would rival the worst year of the 2008 Global Financial Crisis or the 2022 drawdown. That is severe by historical standards for a balanced portfolio, but it is conceivable here because both sides of the portfolio (stocks and bonds) contribute to the decline. Importantly, this scenario assumes no large-scale financial crisis: credit markets, while stressed, remain functional (thanks in part to policy support like Fed rate cuts or even fiscal stimulus by late 2025). The drawdown is driven by eroding fundamentals rather than outright panic. In this scenario, by early 2026 markets might be finding a bottom and positioning for recovery as new political dynamics (e.g. the approach of U.S. elections in late 2026) begin to alter the policy course. Throughout 2025, however, investors would endure a difficult environment of ongoing volatility and a lack of positive catalysts.

Severe Scenario – Stagflation and Global Risk Aversion

This is the bearish tail-risk scenario where policy missteps compound and the situation spirals into a global stagflationary recession with potential financial stress. In this outcome, the U.S. fully executes Miran’s agenda in an uncompromising way: universal tariffs remain (or even increase further – perhaps the threatened 60% on Chinese imports is imposed in full), no meaningful currency accord is reached (allies do the bare minimum, China outright refuses), and the dollar plunges in a disorderly fashion as confidence in U.S. policy erodes. Foreign investors could interpret forced Treasury conversions into ultra-long bonds as a form of stealth default, leading to a sharp selloff in U.S. debt⁵. Long-term yields might spike (e.g. the 10-year Treasury above 5–6% even in recession), putting the Federal Reserve in a bind. Inflation could rise markedly due to tariffs (core inflation potentially breaching ~5–6% by late 2025). The Fed, fearing entrenched inflation, might not cut rates aggressively or could even hike, despite the weakening economy – akin to the late 1970s scenario where the Fed tightened into a downturn, a disastrous mix for markets⁸. Equities in this scenario could see a deep bear market, perhaps approaching the magnitude of 1973–74 or 2008 in nominal terms. We project U.S. equities might fall on the order of –30% or slightly more from the peak in a severe case. For context, the S&P 500’s decline in the 1974 stagflation was about –48%¹³, and in 2008 around –55%. A ~30% stock decline would be extremely painful but not unprecedented; it assumes a significant recession tempered by some pockets of resilience (e.g. sectors like defense or infrastructure, which the government might bolster, could fare relatively better). International developed equities could drop roughly –25% or more; some markets might do worse if their financial systems come under strain, although those with strengthening currencies might be cushioned in USD terms (for instance, if the euro surged to $1.25–$1.30 or the yen strengthened below 100, those FX moves would soften USD-based losses somewhat). EM equities could crater – possibly –35% or worse – especially if a full risk-off wave triggers EM credit crises, sovereign defaults, or if commodity-producing countries suffer both demand collapse and domestic political instability. (It’s conceivable a few EM markets might diverge – e.g. an oil exporter could rally if oil spikes – but the majority would likely plummet.) In fixed income, U.S. bonds could endure their worst drawdown in modern history. If stagflation takes hold, long-term Treasuries could sell off even as stocks tank (reminiscent of 2022 but on a larger scale). A –10% to –15% loss for broad U.S. bond indices is conceivable (the upper end reflecting long-duration Treasuries down ~20% if yields jump a few hundred basis points). Corporate bonds would fare worse, potentially –15% or more if default rates surge. Global bonds ex-U.S. might produce mixed results depending on currency movements: if the dollar is plunging, unhedged global bonds in stronger currencies could ironically show gains in USD terms. However, the dollar would likely be collapsing mainly against a few major currencies (e.g. G7), and less so against others (including many EM currencies), so global bond indices could still fall on the order of –8% to –10%. In total, the 60/40 portfolio in this severe scenario could suffer roughly a –30% nominal drawdown, which would rival the losses of the Great Depression era (in 1931, a 60/40 portfolio was down ~27%¹⁵, though deflation at that time meant even larger real losses). Such an outcome would be historically extreme for a balanced portfolio, but it represents a tail risk if multiple adverse factors coincide. Warning signs that we may be veering toward this scenario include runaway inflation readings, the Fed tightening policy despite a weak economy, failures in U.S. Treasury auctions, or major geopolitical shocks (e.g. a conflict involving Taiwan, or a Middle East crisis adding an oil price spike on top of everything else). Under such duress, one might expect emergency interventions (global central banks stepping in to stabilize bond markets, etc.), but the damage to asset values could already be done by that point. Notably, in this scenario cash (T-bills) and perhaps gold would be among the few havens – cash would at least preserve nominal value (while losing purchasing power to inflation), and gold would likely surge as trust in fiat currencies erodes.

It’s important to treat these scenarios as a spectrum. Reality may well fall between them or shift over time as policies evolve. For instance, markets could track closer to the moderate scenario through mid-2025, then a late-year mild recovery might occur if policymakers change course (perhaps moderating their stance as elections approach). The path of the drawdown could also differ: we might see a quick, steep drop followed by a partial rebound, versus a long grind to the lows. From a risk management perspective, one should consider the severe scenario as a stress-test: can your portfolio withstand a ~30% nominal decline without forced liquidation? Many institutional investors use such scenario analyses to ensure they can maintain strategic allocations through turbulence. The nominal aspect is also key – in a high-inflation environment, nominal asset prices might not fully reflect real wealth loss. For example, a 30% nominal stock drop with 10% inflation would equate to ~40% loss in real purchasing power. Our focus here is on nominal risk, which matters for meeting nominal obligations or avoiding triggers (e.g. margin calls or covenants) tied to nominal values.

Key Macro and Policy Risks to Monitor

As we navigate 2025, investors should keep a close watch on several macro indicators and policy developments that will shape drawdown risks for the 60/40 portfolio. These serve as early warning signals or confirmation of which scenario is unfolding:

• Inflation Trajectory: Perhaps the single most critical factor is inflation. If tariff-driven import price increases and a weaker dollar start pushing U.S. inflation significantly above target (e.g. core CPI sustaining in the 4–5% range), it raises the risk of a stagflationary outcome. High inflation would constrain central banks’ ability to cushion a downturn and could force tighter monetary policy (skewing toward the severe scenario). Conversely, if inflation remains moderate (say under ~3%) despite the tariffs – possibly due to weak demand or offsetting currency moves – it would give policymakers room to support growth (aligning with the mild scenario). Key data to watch: monthly CPI and PCE inflation readings, inflation expectations surveys, and commodity prices (especially food and energy, which feed into headline inflation).
• Central Bank Policy: The Federal Reserve’s reaction function will greatly influence markets. Fed rate decisions and communications should be monitored for signs of whether the Fed is prioritizing price stability over growth (or vice versa). If the Fed signals an aggressive inflation-fighting stance – for example, delaying rate cuts or even hiking in the face of rising prices – that would be bearish for both stocks and bonds. On the other hand, an earlier or larger-than-expected rate cut cycle (prompted by growth fears) could put a floor under bond prices and eventually help equities find a bottom. The shape of the yield curve is a telling indicator: a persistent inversion is a recession warning (we already saw one in 2022–23; a re-inversion or deepening inversion would reinforce a recession outlook). Conversely, a sudden steepening driven by rising long-term yields (a “bear steepening”) could indicate the market demanding a higher inflation or credit risk premium from the U.S. government – a warning sign about fiscal credibility and inflation expectations. Also watch other major central banks (ECB, BOJ, etc.): coordinated easing or emergency liquidity measures (e.g. re-opened swap lines, expanded asset purchases) could mitigate global stress. In an extreme severe scenario, global central banks might even contemplate extraordinary steps (for instance, the Fed capping yields or intervening in FX markets) to restore stability.
• Exchange Rates and Capital Flows: Keep an eye on any currency interventions or international accords. If news breaks of a concrete “Mar-a-Lago Accord” agreement – even a mini-deal among a few key countries – it would likely signal a turning point, potentially allowing the dollar to weaken more smoothly and reducing market volatility⁹¹². Alternatively, unilateral actions like the U.S. Treasury intervening to weaken the dollar, or China abruptly widening the yuan’s trading band, could inject volatility. Large moves in the USD/CNY exchange rate are especially important: if the yuan’s decline accelerates beyond a controlled pace (say it rapidly breaks past 8.0 per dollar), it might indicate Beijing is weaponizing devaluation, which could spook global markets (similar to triggers for sell-offs in 2015 and 2016). Also monitor capital flow indicators: for example, if countries start imposing capital controls or rapidly drawing down FX reserves to defend their currencies, that’s a sign of stress that could spread. Similarly, watch demand at U.S. Treasury auctions – weak demand, widening bid/ask spreads, or foreign selling of Treasuries would point to rising risk of a bond market dislocation⁹.
• Yield Curve and Credit Markets: The health of credit markets often foreshadows broader financial stability issues. Credit spreads (both investment-grade and high-yield) are key risk gauges – a rapid widening to stressed levels (e.g. high-yield spreads approaching ~800+ basis points over Treasuries) would signal liquidity drying up or mounting default fears. For instance, if high-yield bond spreads begin approaching crisis levels, it would indicate severe risk-off sentiment and possibly imminent credit events. The U.S. Treasury yield curve should be watched for unusual moves as well: we’ve already experienced an inverted yield curve; if it inverts again after un-inverting, or if it steepens sharply due to surging long rates, those would carry different warnings (the former reinforcing recession odds, the latter suggesting lost confidence in U.S. finances). Any disorderly jump in Treasury yields, as discussed, might even force intervention by the Fed. Also keep an eye on market-based inflation expectations (like TIPS breakeven rates) – if these climb sharply, it means markets see inflation getting out of hand, which would hurt both stocks and bonds.
• Corporate Earnings and Guidance: On the micro side, 2025 corporate earnings reports will reveal on-the-ground impacts of tariffs and other policies. Listen to what companies are saying in earnings calls. If many firms start issuing profit warnings due to rising input costs or lost sales (especially multinationals citing tariffs or supply chain shifts), analysts will likely cut forecasts further and equities could take another leg down. Profit margins bear close watching – declining operating margins in sectors like manufacturing, tech hardware, and consumer goods would signal that tariffs are biting into profits. Conversely, if some industries demonstrate resilience or pricing power (e.g. able to pass costs on to consumers successfully), that could limit the damage. The first and second quarter results of 2025 will be particularly telling. Additionally, any anecdotal evidence of companies reorganizing supply chains (for instance, shifting production out of China to avoid tariffs) could have long-term strategic implications but might entail short-term disruption and one-time charges.
• Trade Negotiation News: Inevitably, news flow around negotiations (or stalemates) will drive sentiment. Markets are likely to react to every rumor of talks or threats of escalation. It’s important to discern real progress from noise. Key events to mark on the calendar: G7 or G20 meetings, any bilateral U.S.–China summits, or special envoys shuttling between capitals. For example, if a U.S.–EU trade or currency agreement is announced, that would be a positive inflection point. If talks break down and new tariffs are suddenly announced, that would be negative. Keep an eye on official statements from the U.S. Trade Representative, the Treasury, and their counterparts abroad (e.g. the European Commission’s trade office, China’s Ministry of Commerce). The tone of rhetoric matters: by late 2019, U.S.–China negotiations adopted a more conciliatory tone which helped markets – we should watch whether 2025’s harsh rhetoric shows signs of softening.
• Geopolitical and Security Issues: Miran’s plan explicitly links economic and security issues¹², so geopolitical developments could impact the outlook. For instance, if disputes over defense burden-sharing arise because of this linkage – say the U.S. hints at withdrawing troops from certain regions unless allies make economic concessions – it could unsettle allies and markets. Conversely, a strengthening of alliances (e.g. Japan increasing defense spending in return for tariff exemptions) would reassure markets. On the other hand, a breakdown in alliances or a new geopolitical shock (for example, a flare-up in the South China Sea or a Middle East crisis that sends oil prices soaring) could exacerbate an economic downturn and tilt events toward the severe scenario by adding supply shocks or undermining cooperation. Essentially, moves in the U.S. security umbrella (troop deployments, defense agreements) should be watched as part of the economic equation – a novel situation where trade and defense are intertwined.
• Fiscal and Debt Developments: Keep an eye on U.S. fiscal policy changes. Tariff revenue provides some offset to budget deficits, but if growth falters, deficits could still widen. Any talk of new fiscal stimulus (infrastructure spending, tax policy changes) will affect sentiment – stimulus could support growth (favoring the mild scenario), whereas political gridlock or austere budgets could worsen the downturn (moderate or severe scenarios). Similarly, how the Treasury’s debt restructuring ideas progress is key. Announcements of ultra-long bond issuance or foreign debt-swap agreements will signal whether Miran’s debt plan is gaining traction⁹. If major creditors resist these plans and instead start reducing their Treasury holdings, that would be a red flag indicating U.S. financing stress. Watch the Treasury’s financing operations for any unusual moves as well (e.g. emergency cash management measures or Federal Reserve interventions to cap yields), as these would indicate strain in the debt markets.
• Market Technicals and Liquidity: Beyond fundamentals, monitor technical underpinnings of markets. Volatility indices (the VIX for equities, MOVE for bonds) remaining elevated or spiking again would indicate persistently fragile sentiment¹⁴. Market liquidity in equities and bonds is another factor – if bid-ask spreads widen dramatically or trading large positions becomes difficult, that can amplify market declines. Also watch for stress in short-term funding markets or global dollar liquidity (e.g. rising LIBOR-OIS spreads or widening cross-currency basis swaps), which would suggest that financial institutions are growing nervous and possibly hoarding cash, a precursor to broader credit tightening. Central banks may respond with liquidity injections or reinstating swap lines if these occur. Additionally, monitor investor hedging activity – metrics like put/call option ratios, flows into inverse ETFs or tail-risk funds, etc. If markets are heavily hedged, incremental bad news may have a more muted impact (since many investors are already positioned defensively). Conversely, if investors become complacent and under-hedged, negative surprises could trigger outsized moves as everyone rushes to hedge or sell at once.

In summary, the road ahead for the global 60/40 portfolio is highly contingent on policy developments and macro conditions in 2025. By tracking the indicators above – inflation trends, central bank actions, currency movements, credit conditions, corporate earnings, trade negotiations, geopolitical shifts, and market liquidity – investors can glean early clues about whether risks are abating or escalating. This vigilance will allow for timely adjustments (hedging, rebalancing, or strategic allocation changes) to mitigate nominal drawdown risk. The current environment is fluid and fraught with unusual policy-driven uncertainty. While a mild resolution could see the 60/40 portfolio stabilizing and recovering, a severe stagflationary spiral could challenge even well-diversified portfolios in nominal terms. Thus, staying alert to risk signals and being prepared with contingency plans is paramount. Ultimately, the resilience of the 60/40 portfolio in 2025 will depend on how deftly policymakers manage to execute (or pull back from) Miran’s bold blueprint without unleashing the very crises they aim to prevent.

 

References (APA Style)

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¹³ Depledge Strategic Wealth Management. (n.d.). Projected market drawdowns under 2025 tariff scenarios [Analysis]. DepledgeSWM.

¹⁴ Rovnick, N. (2024, December 12). Rate cuts come thick and fast in Europe and Canada as Trump tariffs loom. Reuters.

¹⁵ Carlson, B. (2019, October 17). A eulogy for the 60/40 portfolio. A Wealth of Common Sense.

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