In the first half, we discuss the imminent arrival of “Liberation Day”, and why uncertainty over tariffs is causing consternation to consumer, business, and investor confidence. We look at the most recent inflation data from the government and examine the widely divergent inflation expectations based on political affiliation. We also tie this to the likelihood of further rate cuts and the necessity to drive rates lower as sizable government debt is due to be refinanced in 2025.

In the second half, we (finally) discuss what has been a challenging quarter for stocks, especially the Magnificent Seven:

• In the aggregate, the Mag Seven are in a bear market (down 20%).
• The S&P 500 is down 5% YTD and 10% below its all-time high, led lower by the Mag Seven.
• The average stock in the NASDAQ is 35% below its high.

The path forward for the market depends on the impact of tariffs and spending cuts, both of which are likely headwinds in the near term. With both valuations and earnings expectations still elevated, there remains downside in the event of either an economic or earnings recession. However, value stocks have performed well year-to-date, as have non-U.S. stocks, which are garnering attention as a result of changing U.S. trade and foreign policy. In other words, diversification has (finally) been helping.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

In the first half, Will and Adam discuss the rapid deterioration in consumer sentiment and how it is cutting across both economic and political divides, albeit to differing degrees. Some sentiment indicators, especially concerns over job loss, are at levels normally seen during a recession, in part due to the uncertainty over tariffs with large trading partners like Canada. Another concern is spending cuts. We look past the headlines to see that cuts have not yet taken hold, though with 85% of job growth in 2024 attributable to government spending, we could be in for a volatile transition period as a result of the “detox” the administration is seeking.

In the second half, we look at the recent (albeit brief) market correction, and put it in historical context:

• Since 1980, the average yearly decline for the S&P 500 has been 14%.
• There have been about 117 10% corrections since 1928, so around one per year.
• Statistically, a 10% correction turns into a bear market around 25% of the time, and that normally occurs when the economy dips into a recession. The rest of the time, the market recovers in about eight months, on average.

Although modest, the 10% correction is equivalent to 12% of GDP. That type of hit to wealth has contributed to a recession in about half of the prior 12 occurrences.

With the Magnificent Seven, on balance, lagging this year, we look at the prospect of a broader market showing the benefits of diversification, not to mention the strong start to the year for non-U.S. stocks, which have been buoyed by the shift in spending priorities in both developed and emerging markets.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

With headlines versus earnings moving markets, we look at the perceptions and realities influencing investors (and speculators).

In the first half, we discuss the sharp decline in consumer confidence and spike in inflation expectations, both of which represent challenges to continued equity market strength. We also look at how the bond market (and the Federal Reserve) are responding, and how the continued on again/off again/on again tariff headlines are causing consternation to consumers and investors.

In the second half, we delve into the perception versus reality of government efforts to cut waste and if that is enough to reduce the deficit enough to achieve the administration’s goal of a lower yield on longer term Treasuries. We also look into the effects of wealth and spending inequality on the economy. There is also a continued discussion of the effect of passive fund flows and levered ETFs on some of the markets biggest names, and how those are widening the dispersion between stock indices versus the average stock; to wit:

• The NASDAQ is only 5% from its year-to-date high, while the average NASDAQ stock is 25% from its high.
• Only 22% of stocks in the S&P 500 outperformed the index over the past 12 months.
• After six of the so-called Magnificent Seven outperformed in 2024, only one is ahead of the S&P 500 so far this year.

We close with our thoughts on where we are seeing positives and why, eventually, fundamentals may matter more than headlines.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.