The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
The game has changed.
You don’t need me to recap today’s carnage. It began shortly after the Rose Garden announcement and it only got worse over time. Yields fell a lot. Current Fed cuts for 2025 are priced at 93 bips. The Dollar fell 1.5%, a huge move. Commodities suffered badly too. Markets experienced shock and awe.
Let’s discuss.
Forget the politics. The tariffs will make most everything more expensive for everyone along the supply chain. The consumer will feel it last but everyone will feel it in some capacity. Who-feels-how-much-pain is a sideshow question not worth addressing. In the aggregate, demand will drop. This will be global. How much? I don’t know. However we were already slowing in the US and this will probably push us into a recession. Direct calculations are bouncing around that don’t show a trued GDP contraction but the psychological and higher-order effects are not in those numbers. Risk appetites are materially diminished and they won’t just bounce back, nor will they simply hold at today’s levels, whatever those might be.
I’m not talking about the stock market risk appetite either. I’m talking about purchase orders in the real economy. I’m talking about capital expenditures. I’m talking about consumer budgets. The global population of economic actors, large and small, just got a stiff punch in the nose and the collective reaction will be to spend less, do less, expand less, and wait out the storm. That will have a consequence. It won’t be positive and it won’t be of the size of these initial estimates from the economist community.
Here’s my point. The stock market is not ready for a recession. The stock market thinks that this is bad but not recession-bad. In the short run, we may get some recovery in the S&P. We may get some amazing rallies but I think the next month or two will send us lower.
I don’t think we bottom until we see a negative GDP print *and* we think we already hit bottom.
That’s off in the future. My optimistic guess is 1-2 months. My realistic guess is a few months longer. That’s not good.
I honestly wonder how much more downside there might be. A bear market would only be official if the S&P fell to 4900, about 10% lower.
Are we in a bear? Is it too late to rotate or cash out? I don’t have conviction but my gut says it’s not too late to de-risk.
See you tomorrow.
-Mike
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