In a recent economic commentary, market analyst Francis Hunt forecasts a bearish outlook for equities, emphasizing the absence of sufficient market liquidity to support a “melt-up” scenario. Hunt argues that in the event of a market downturn, a rapid recovery is unlikely. The decline in revenues among the “Big Seven” tech and large-cap firms will not be offset by gains in lower market capitalization equities. Given the disproportionate weighting of these companies within indices such as the S&P 500, replacement gains would require nearly double the percentage increase to compensate for equivalent losses, which is deemed unsustainable in the current climate.
Quantitative Easing (QE), historically a key driver of equity growth since 2009, is no longer providing the same tailwinds. Prior to 2008, interest rate cuts played a central role in market surges. However, with the current policy environment less conducive to such interventions, the support mechanisms for equities have significantly weakened.
Despite a recent increase in the U.S. M2 money supply—reaching levels previously seen during the COVID-19 stimulus phase—the associated velocity of money has declined. This suggests that while monetary expansion is occurring, it is not translating into increased consumption, as evidenced by stagnating GDP figures. The dynamic points to structural economic fragility, rather than a liquidity-driven recovery.
Gold vs. Bonds: Recession Indicators and Safe-Haven Flows
The U.S. economy appears to be entering a recessionary phase, with the federal funds rate currently at 4.2%. Geopolitical pressures further compound the risk. Both China and Japan—major holders of U.S. debt—possess the capacity to influence Treasury yields significantly. A large-scale selloff of U.S. bonds by either country could precipitate a surge in interest rates, independent of Federal Reserve policy.
The bond market is displaying a classic “head and shoulders” pattern, typically indicative of forthcoming interest rate increases. With bonds no longer classified as Tier 1 capital assets and the traditional 60/40 investment model increasingly ineffective, investors are reevaluating their portfolios.
Gold has emerged as a preferred risk-off asset, drawing unprecedented demand from hedge funds, central banks, and high-net-worth individuals. It has decoupled from its historical correlations with real interest rates, the U.S. dollar, and oil prices. After a temporary pullback to $3,200 USD, gold remains a core safe haven. Concurrently, oil prices have declined to $61.70 USD, down significantly from $82 USD at the end of 2024, reinforcing the narrative of weakening global demand.
Cryptocurrencies may also offer alternative store-of-value potential, although their resilience remains untested in recessionary environments.
Business and Supply Chain Dynamics
Global supply chains are under renewed pressure. Container ships are currently being held in China, raising concerns over a potential supply crisis within 40 days, particularly for critical packaging materials in the U.S. Domestic inventories are being driven down, while 42% of U.S. banks are declining mortgage rollovers and 66% of auto loans are being rejected—indicating a credit contraction and consumer pullback.
Apple Inc., as a notable example, is shifting production of iPhones to India, leveraging its strong balance sheet to mitigate geopolitical and cost-related risks. COVID-19 highlighted the vulnerability of global Just-In-Time (JIT) supply models and the need for resilient planning. While some companies have adjusted their supply chain strategies to account for risk, many remain reactive rather than proactively structured for long-term shifts.
The imposition of tariffs has compounded these stresses, creating bottlenecks and the risk of trade shocks, especially in the event of retaliatory actions or bans against U.S. goods.
April saw a sharp drop in container volumes entering the U.S., although activity is beginning to recover. However, shipping routes have been disrupted, with vessels detouring around Africa, extending delivery times. The U.S. undertook front-loading of imports to offset anticipated tariff impacts, leading to overstocked warehouses and strained working capital—especially damaging for cash flow and inventory efficiency for the rest of the year.
Production costs are rising due to fragmented assembly and rising input costs. The strategic pivot from Chinese manufacturing to other emerging markets is underway but the benefits are not immediate. SMEs that weathered the COVID crisis now face new headwinds that could prove fatal. Shipping rates have declined in response to dampened demand and trade restrictions. However, this trend is fragile and could reverse quickly, particularly in the context of escalating conflicts in the Middle East.
Procurement Implications and Strategic Considerations
Tariffs are poised to create significant cost pressures across procurement operations. This period represents a crucial opportunity for businesses to re-evaluate supplier portfolios and better align procurement strategies with both internal operational needs and evolving customer demands. Close collaboration between procurement, production, and supply chain planning (including logistics and warehousing) is imperative. Strong communication and integrated data systems will be essential for optimizing efficiency and mitigating cost escalations. Key indirect spend categories—such as Maintenance, Repair, and Operations (MRO) and freight—must be strategically managed in conjunction with Cost of Goods Sold (COGS). Harmonizing procurement and supply chain operations will be vital in managing risk while navigating a contracting economic environment.
Conclusion
The global economy is entering a complex period of contraction, marked by declining consumption, geopolitical risk, and fractured supply chains. While liquidity is rising nominally, structural issues—such as declining money velocity and constrained credit access—suggest deeper problems. Gold has solidified its role as a reliable safe haven, and the bond market’s volatility poses long-term challenges for traditional portfolio management. Businesses, particularly those with international supply chains, must act decisively to reassess sourcing strategies, manage operational risks, and conserve capital. The coming months will demand agility, foresight, and strategic coordination across all tiers of enterprise operations.