March 12, 2025

QuickTakes

The Trump Put

Is Kaput!

Vertigo is a sensation of spinning or whirling such that the person or their surroundings appear to be moving. The stock market didn't do much today, but everything else seemed to be spinning. The epicenter of all this vertigo continues to be the White House. More and more economists are increasing their odds of a recession. We raised ours to 35% a week ago. JP Morgan's economists raised their odds to 40% today.

We didn't raise our recession odds today, but we did lower our S&P 500 targets for the end of 2025 and 2026 to 6400 and 7200 from 7000 and 8000. We aren't cutting our earnings outlook yet, but recession fears caused by Trump Turmoil 2.0 are already causing the forward P/E and forward P/S of the S&P 500 to tumble, led by the valuation multiples of the Magnificent-7 (chart).

The stock market started the day with a nice boost from a cooler-than-expected CPI inflation rate (chart). The one-month annualized rate was 2.6%, the lowest since August 2024.

Then stock investors were reminded by the latest tariff tiffs that tariffs may soon boost inflation. Furthermore, the bond yield mostly rose all day, unnerving stock investors. That's because the Treasury reported that the US budget deficit for the first five months of fiscal 2025 hit a record $1.147 trillion. It is very disconcerting to see outlays continue to rise faster than revenues, which shouldn't be happening when the economy is expanding (chart).

In addition, a government shutdown seems increasingly likely by the end of this week. What a mess!

Meanwhile, a “Go Global” strategy (as measured by the MSCI All Country World Ex US index) continues to outperform “Stay Home” (the MSCI US) (chart). Global investors are clearly signaling that they are finding cheaper stocks overseas with happier earnings stories, particularly in China and Europe than in the United States, currently. That could change if the trade war started by President Trump worsens. No wonder gold continues to be one of the best performing assets right now.

The Bull-Bear Ratio compiled by Investors Intelligence fell to 1.3 during the past week. From a contrarian perspective, that's a buy signal. The only problem is that the President continues to give investors vertigo. Speaking outside the White House on Tuesday, where he was testing out his brand new Tesla car with Elon Musk, Trump called the stock market "a fake economy." That's after he said on Sunday, "you can’t really watch the stock market."

The Trump Put is kaput.

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