March 16, 2025

QuickTakes

MARKET CALL:

The Best Trump Trade

So far among the best Trump trades has been to short the S&P 500 since February 19 through last Thursday (chart). It fell 10.1% over this period. Let's call it the "Trump Thump." We aren't convinced that the correction is over despite Friday's rally and extremely bearish sentiment readings, which tend to be bullish from a contrarian perspective. In the past, such readings often elicited a Fed-Put easing response. That's not likely on Wednesday after the FOMC meets and Fed Chair Jerome Powell holds his presser. He is likely to reiterate that the Fed is in no hurry to lower interest rates.

Stock futures are down a bit this evening after Treasury Secretary Scott Bessent said this morning that there are "no guarantees" that there won't be a recession. On the other hand, he boldly guaranteed that there won't be a financial crisis. (Jinx?) So there won't be a Trump Put either. Then again, there should be a rebound in February's retail sales, to be reported tomorrow morning, though it might have been muted by the second month in a row of colder-than-average weather. We will feel better about calling a stock market bottom when the market is no longer "tarrified" by Trump's tariff threats and actions. It might bottom after April 2, when Trump imposes reciprocal tariffs all around the world, if they lead to tariff-reduction negotiations.

The second best Trump trade has been to buy gold, betting that Trump's coming “Golden Age” is golden only for gold (chart). We are simply reporting the facts, not taking a political position, which we avoid doing when considering investment strategy. The idea is to make money and to avoid losing it rather than to score political points. We certainly hope that President Donald Trump succeeds for the good of the country.

Meanwhile, the correction in stocks has been attributable to falling valuation multiples, especially for the Magnificent-7 stocks (chart).

So far, industry analysts haven't gotten either the tariff memo or the recession memo. S&P 500 forward earnings per share rose to a record $278.59 during the March 13 week (chart).

With economists on the Street raising their recession odds, the valuation multiple of the S&P 500 Growth stock price index has dropped much more so than that for Value (chart).

The S&P 500 is now down 1.8% below its 200-day moving average. In the past, corrections were often associated with 5%-10% declines below this average (chart). Bear markets tended to bottom when the index was more than 20% below its 200-dma.

So far this year, most foreign stock markets have outperformed the US stock market (chart). This suggests that Trump's tariffs are more likely to depress the US economy than those in the rest of the world.

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