Macroeconomic Insights: A Look at Current Trends
Readers familiar with my writing might have noticed I don’t focus much on macroeconomic topics. I really believe it’s pretty tricky—maybe even impossible—to forecast things like interest rates, economic growth, currency shifts, and inflation. It’s a bit overwhelming, honestly, trying to untangle how all these factors influence investments.
Peter Lynch had a memorable quote: “If you spent 13 minutes a year on economics, you’ve wasted 10 minutes.” And while I certainly get that perspective, there are moments when stepping back to see the bigger picture can serve a purpose. With that in mind, we’ve refreshed the charts featured in Morningstar’s Market Observer. These charts highlight seven key metrics, and I appreciate them because they convey a wealth of information. Even if you’re just skimming, you can see that six out of the seven metrics are currently on the higher side compared to historical data, which might warrant some attention.
Gold
Current level: Very expensive
What it means: Gold is performing strongly, but be cautious about pursuing this momentum blindly.
As I recently pointed out, gold has been the top performer of major asset classes over the last 20 years, yielding over 31% up until August 31, 2025. These trends seem likely to persist, yet there’s a significant risk when gold is trading at such elevated levels. Research by Campbell Harvey and Claude Elb suggests that historically, high gold prices, when adjusted for inflation, tend to revert to more average levels. This means that a spike, like what happened in 1980 and again in 2011, could be followed by long periods of lower returns.
In a nutshell, the recent surge in gold prices signals a heightened risk. Personally, I think it’s wise to keep gold investments to about 5% or less of your total portfolio, especially since this current bull run likely won’t endure forever.
Federal Funds Rate
Current level: Relatively expensive
What it means: Despite rate cuts, cash yields are outpacing inflation, making fixed-income securities appealing.
As of August 31, the midpoint target for federal interest rates was 4.33%, though it has decreased to around 4.15%. Even post the historic lows set in 2011, the current rates are much higher than the minuscule 0.04%. After the global financial crisis, the Federal Reserve aggressively reduced short-term rates to stabilize the economy and also bought mortgage-backed securities, contributing to low borrowing costs for nearly 15 years.
Fast forward to March 2022, and those zero-interest days seemed far behind, with the Fed initiating series of aggressive hikes to combat inflation. However, rates are dropping again, making cash and short-term securities fairly attractive. For instance, Treasury bill yields are exceeding the latest annual inflation rates.
US Market P/E
Current level: Expensive
What it means: Stock prices in the US are high, highlighting the need for international diversification.
Over the past 20 years, US stocks have performed very well, coming in just behind gold. There have been a few short recessions—2018, early 2020, and 2022—but overall, stock prices continue to climb, thanks to rising corporate revenues and multiple expansions. The price-to-earnings ratio of the Morningstar US Market Index has more than doubled since the financial crisis lows.
Even though valuations could keep increasing if corporate earnings remain strong, high prices leave little room for downturns if growth doesn’t meet expectations. Currently, while the US market isn’t offering bargains, there are still pockets of value, particularly in sectors like energy and healthcare.
Brent Crude Oil
Current level: Relatively low
What it means: It might be a good time to consider adding small positions in commodity funds, particularly for energy exposure as a hedge against inflation.
Oil prices have experienced significant fluctuations in the past two decades. Initially driven up by demand from emerging markets, prices hit a peak of around $146 per barrel in July 2008, only to tumble during the financial crisis. After some recovery, prices faced another drop due to oversupply and geopolitical tensions.
While oil prices have partially rebounded, they’ve faced downward pressure over the recent years, partly due to weak demand and shifts towards renewable energy.
Bitcoin
Current level: Expensive
What it means: If you’re looking to buy Bitcoin or any digital assets, be aware of the hype that comes with it.
Bitcoin, which appeared on the scene a bit late, has seen huge returns for early investors. However, that comes with substantial volatility. It’s not uncommon for Bitcoin to experience dramatic price drops, and since it doesn’t generate cash flow, determining its true value can be tricky. Currently trading close to its peak, it’s important to proceed with caution.
US Dollar Index
Current level: Relatively expensive
What it means: The dollar might weaken more in the coming years.
The US dollar seemed invincible for a while, but the trend has shifted recently. Although the nominal broad dollar index fell around 7% in the past year, it remains fairly high in terms of its 20-year range. External factors, like other countries’ economic difficulties, previously boosted the dollar, but signs are indicating a potential diminishing in dollar demand due to rising federal debt.
Real Home Prices in the US
Current level: Very expensive
What it means: While retirees may tap into home equity for expenses, younger individuals face challenges entering the housing market.
After years of decline, real home prices in the U.S. have surged, reaching levels that could mean significant equity for some homeowners. For retirees, selling a larger home for a smaller one could unlock much-needed funds, though younger buyers may be left with limited options, potentially needing to settle for smaller, less desirable properties or rent longer while saving up.
