The only certainty to write is that uncertainty is at levels not experienced in many years. This too shall pass; perhaps however the ultimate outcome is unquantified.
But despite all the uncertainty, the vast majority of Wall Street expect the S & P 500 to rally though the remainder of 2025. This level of optimism is not supported by history, even without the disruptions caused by the tariff war.
Bloomberg states there are only two strategists, among the over three dozen tracked expect the S & P 500 to end the year lower than where it is now.
Bloomberg writes the current 15% drop is significant. Going back to 1957, the S & P 500 has fallen at least this much through mid-April 16 times and there were only three occasions the Index had recovered to end December in the positive category…2020, 2009 and 1982. All three times the market was rescued by the Federal Reserve as per Bloomberg.
Will the Fed rescue the market for a fourth time? Depending upon the minute of the day, the market is expecting the Central Bank to lower the overnight rate between two and five times by the end of the year, the result of a slowing or recessionary economy from the tariffs.
And then there are earnings. First quarter earnings season commenced last week. Estimates are being lowered for obvious reasons. Forward-looking statements are expected to be non-committal at best. How will the results [and forward looking or the lack of there of statements] be interpreted?
Speaking of a slowing economy, the Atlanta Fed GDPNow model is projecting a first quarter downturn of -2.4%. Imports subtract from GDP and many companies have imported goods ahead of the tariffs.
However, what is perhaps significant of this negative forecast is that the Atlanta Fed has included in its forecast the impact of massive gold imports. [Remember imports are negative to GDP]
The Atlanta Fed states there was enough gold bought in the first quarter to reduce its forecast GDP number by a negative 2.1%.
This forecast has been around since 2014, and it is the first time the Atlanta Fed has broken out this component according to Newswire reports.
Perhaps the big box stores are some of the companies that could be greatly impacted by the tariffs. Home Depot states that 30% of its products originate in China. Wal-Mart states over 70% of its products originated in China.
According to government data, the US exported $144 billion in goods to China in 2024 while $439 billion went the other direction. Imports from China has been dropping for the last four years for a myriad of reasons including rising labor costs, China’s focus on its Belts and Roads Initiative and COVID/supply chain issues.
Is the trade war only accelerating or accentuating the prevailing trends? The last 30 years is the only time that countries have exported their vital industries and productive capacity to its adversaries under the simplistic guise of “price is the only determinate of a purchasing decision”.
This mantra changed during COVID/Ukrainian war to “reliability and availability is the only determinate of a purchasing decision” where the West has weaponized the flow of funds and the East the flow of products.
Commenting about yesterday’s market action, led by the mega cap, equities were volatile erasing an early morning 2.5% NASDAQ advance, then went negative and the NASDAQ closing about 0.6% higher.
The yield curve steepened as there was a strong rally in the two-year Treasury or instrument most sensitive to monetary policy.
Last night the foreign markets were up. London was up 0.77%, Paris up 0.18% and Frankfurt up 0.89%. China was up 0.15%, Japan up 0.84% and Hang Seng up 0.23%.
Futures are flat. If one is searching for a contra indicator, a recent Bank of America investor sentiment reading indicates that market participants are the most bearish in three decades. This bearishness, however, is not reflected in asset allocation models which can be interpreted as bearish according to the Bank.
The 10-year is off 6/32 to yield 4.39%.
