Published 28 February, 2025
This week we start with a quick note about the sources of our weekly content since some of you have asked. We are trend-following mechanical/quantitative model investors. Since we are focused on technical analysis and the data behind the market, we often turn to other experts for analysis of the fundamentals of the economy, business, and markets. With few exceptions, those experts are money managers in charge of billions of dollars of assets, pension funds, mutual funds, hedge funds, et al. These are the types of folks who move markets. As a result, we take their views seriously and strive to present them without edit. One example is Liz Ann Sonders from Charles Schwab. As the Chief Investment Officer for the largest brokerage in the country, Ms. Sonders’ analysis and opinions carry substantial weight in both the institutional and retail investor world. Being technically-driven investors, we have the luxury of not having to try and decipher which way the economic and market winds will blow. We appreciate these folks who dedicate their careers to helping us understand what’s going on in the broader economic and market world and hope you find their insights of value. While interesting, their analyses do not have an impact on our mathematical models.
Markets have become concerned that the economy is slowing. Investors sold stocks this week after a flurry of mixed reports failed to lessen those concerns. Here is a summary and some relevant data points from Blaine Rollins. His note was written early this week BEFORE the heavier selling that occurred Thursday after Nvidia’s earnings failed to rally buyers. We would note that markets can unravel this negative tone in a heartbeat. And the first 100 days of any new administration is usually a tough time for stocks as investors adjust to the new policy directions. This change of heart may not linger. April is often a good month for stock investors. Let’s see how things play out in the coming weeks.
With that backdrop, here is the litany of issues that have sent stocks reeling in recent days:
“We knew that President Trump would test the guardrails of the financial markets to see how much he could push his agenda into his second term. Unfortunately, the chaotic moves on tariffs, accelerating government layoffs, aggressive moves on immigration and rapidly shifting International alliances have begun to push the U.S. business and consumer economy too far. Cracks are quickly developing in corporate capex planning, business hiring intentions and future consumer spending decisions. Last week, the financial markets decided to pay close attention and send a strong signal by hitting the bank stocks and other leading momentum stocks. The Russell 2000 has now gone negative for 2025 while homebuilder stocks are in a 25% pullback from their October highs. Both WTI crude oil and the ten-year Treasury yield have retreated 10% from Inauguration Day which are moves that do not occur in a strengthening economy.
As thoughts of stagflation return to the financial markets, it is time to do a gut check and study what you love the most in your portfolio and what you might want to hedge or realize gains in. Maybe all of this political volatility can end tomorrow, and the economy can forget about this recent episode of dismal thoughts. I also didn’t have the U.S. taking Russia’s side for the history of the Ukraine war on my 2025 bingo card. Any U.S. sales into Europe just became more challenging, tariffs or not.
The business surveys are showing that January’s strength has reversed…
The upbeat mood seen among US businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices.
Optimism about the year ahead has slumped from the near-three-year highs seen at the turn of the year to one of the gloomiest since the pandemic. Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments. Sales are reportedly being hit by the uncertainty caused by the changing political landscape, and prices are rising amid tariff-related price hikes from suppliers.
Whereas the survey was indicating robust economic growth in excess of 2% late last year, the February survey signals a faltering of annualized GDP growth to just 0.6%.
While overall inflationary pressures remained muted, this reflected a squeezing of margins in the services sector as companies sought to absorb cost increases in order to offer competitive prices amid weakened demand. A concern is the sharp, tariff-related, jump in manufacturing input prices, which will likely either put further upward pressure on inflation in the coming months or further squeeze profit margins among US companies.
The outlook for the Texas region has begun to contract…
Dallas Fed respondents not pleased with the tariff uncertainty…
@bespokeinvest: Of the 1,045 words in the commentary section of the Dallas Fed Manufacturing report, the word tariff(s) was mentioned 22 times (2.1%). A few:
“Tariff threats and uncertainty are extremely disruptive.”
“The back-and-forth tariff talk has been very stressful, but it has not been disruptive so far.”
“There’s some trepidation about inflation and tariff impact”
“It is very hard to plan. Interest rates? Tariffs? Wow.”
Consumers are not happy about their financial outlooks…
@KevRGordon: Consumers have not been this pessimistic about their household finances in the next 5 years since December 2013
IPO’s are now being pulled from the books…
For months, investors have eagerly anticipated a wave of initial public offerings, spurred by President Trump’s new administration. Since his election victory in November, which ended a tumultuous campaign season, Corporate America and Wall Street have heralded the start of a pro-business, anti-regulation period. The stock market soared ahead of an expected bonanza of deal making.
But the administration’s tariff announcements and rapid-fire regulatory changes have created uncertainty and volatility. Worsening inflation has set off market jitters. And the emergence of the Chinese artificial intelligence app DeepSeek last month caused investors to question their optimistic bets on U.S. tech, leading to a drastic sell-off among A.I.-related stocks.
All that has affected initial public offerings. “The calendar just went from fully booked to being wide open in a span of like three weeks,” said Phil Haslett, a founder of EquityZen, a site that helps private companies and their employees sell their stock…
So far this year, the pace of public offerings is ahead of last year’s, with companies raising $6.6 billion from listings, up 14 percent compared with this time last year, according to Renaissance Capital, which manages I.P.O.-focused exchange traded funds.
Yet there are no signs of the I.P.O. wave that many had anticipated, especially from big-name companies that had spent the past two years waiting to go public. Apart from Turo’s canceled listing, Cerebras, an A.I. chip company that filed its investment prospectus this past fall, has also delayed plans to go public.
One typically bullish hedge fund investor sees problems with all the moves in Washington D.C…
US growth is likely to slow in the second half of the year as tariffs, tighter immigration laws and government cost-cutting efforts led by Elon Musk weigh on the economy, billionaire Steve Cohen said.
The Point72 Asset Management founder, speaking at the Future Investment Initiative Institute’s summit in Miami Beach Friday, struck a bearish tone when asked about his outlook. He pointed to sticky inflation, slowing growth and the possibility of tit-for-tat tariffs as drags on the US economy.
“I’m actually pretty negative for the first time in a while,” Cohen said. “It may only last a year or so, but it’s definitely a period where I think the best gains have been had and wouldn’t surprise me to see a significant correction.”
Cohen said US economic growth is likely to slow to 1.5% from about 2.5% in the second half of the year. He was also downbeat on the Musk-led Department of Government Efficiency, calling it an austerity initiative, and said tariffs will hold the economy back.
“Tariffs cannot be positive. It’s a tax,” Cohen said. “And you can imagine tit-for-tat if the US implements a tax on somebody, they’re going to perhaps raise the stakes and raise their tax back.”
The markets woke up last week by damaging some of their favorites…
This is a list of new all-time highs post-election but new 20-day lows on Friday.
And we now have 10% pullbacks in America’s two largest consumer retailers which is not a positive read on the 6-9 month outlook for the consumer…
Surprising to many, while the U.S. market has declined since the Inauguration, the foreign markets have gained…
@bespokeinvest: The US $SPY has been the worst performing of the G7 country ETFs since Trump re-took office, and it’s one of the few country ETFs down over this period. The best since Trump 2.0 officially began a month ago? China $MCHI +19.7%
Long term consumer inflation expectations spiked to a thirty-year high on Friday…
Near term inflation expectations also jumped as tariff talk and breakfast prices are worrying consumers.
The Univ. of Michigan numbers might also be reflective of consumer’s recent utility bills…
@EIAgov: “Residential energy expenditures for homes heating with natural gas and propane for the current winter (November through March) have grown, and now we expect them to total 10% more than last winter.”
The markets are also betting on higher 2-year and 5-year inflation…
With the Fed appearing to be done lowering rates for now, stock investors are feeling boxed in between stubborn inflation, thus no impetus for interest rates to go lower, and weakening economic data. This has led to lots of choppy market behavior.
Market Update
Stocks continued their recent losing streak Monday with the Nasdaq falling -1.2% while a strong showing from Nike pushed the Dow to a slim positive session. Tech/consumer stocks have been struggling through this earnings season as investors have found little new reason to pay up for this expensive sector. Nvidia’s earnings report Wednesday was seen as the last opportunity for the group to attract fresh money. Another -1.4% loss for the Nasdaq Tuesday with consumer sentiment falling for a third straight month in the largest monthly drop in four years. Investors shifted money to more defensive sectors as the Nasdaq/Mag 7 trade has faltered. Tesla fell -8% sending the company value below $1T on a report that European sales for the carmaker have plunged -45% from the prior year. A bit of a break for stocks Wednesday in a muted session with investors awaiting Nvidia’s results. The company’s stock rose +4% ahead of the report. But stocks were bludgeoned Thursday as Nvidia’s results failed to excite investors, and fresh tariff threats kept economic instability high. The Nasdaq tumbled another -2.8% while the S&P 500 registered a decline of half that. Nvidia fell -8% despite positive earnings news in a sign that the bears are really clawing at the tech/consumer now. Stocks bounced back +1.6% Friday when an inflation report came in as expected and sellers took a rest.
A difficult week for stocks as selling in the Nasdaq hit a higher gear. The tech-heavy index (QQQ) fell -3.42% but found support at its long-term 200-day moving average, a level that has acted as support for more than two year. The S&P 500 found strength in financial shares to offset the Mag 7 stock declines. The broad market index (SPY) was left with a -1.01% weekly loss. Small-caps (IWM) slid -1.46%.
Warm wishes and until next week.