Market Commentary

The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.

Bad to worse.

Overnight was bad, early morning was worse, regular trading hours were worst. Tariffs and a trade war are what we’re dealing with. How much economic suffering will result? That’s the one and only question. There’s no need to delve into the nitty gritty details of the day. Let’s go right to the big picture.

It is time to take inventory of the state of the world and what the markets are telling us.

Let’s look at the US economy.

• Yesterday, the Atlanta Fed took their GDP estimate for Q1 of 2025 to -2.8%.
  • This is a positive adjustment from -3.7% prior
  • Atlanta took their estimate into negative territory on Feb 28
    • we’re over a month into them predicting we’re already in a recession
• The 10 year Treasury yield fell to 3.95% today, a drop of 44 bips since Mar 27
  • This is a fast, sharp drop
  • These yields are usually used as an indicator for US GDP expectations. Don’t worry about the absolute levels, pay attention to the relative changes
  • Fast drops in this yield are signals that the market is scared and expecting less economic activity
• 10 year inflation swaps fell to 2.33% today, a drop of 30 bips since Feb 12
  • This too, is fast and significant
  • Drops in expected inflation, when large and rapid, suggest aggregate demand shocks
• The US Dollar is down 6.1% since Jan 13
  • Dollar strength is linked to interest rate differentials but also economic growth differentials
• S&P 500 estimated earnings for 2025 are down to $269.62, down 1.1% from Jan 1
  • The estimate peaked in Aug of 2024 and is down 2.9% since then
  • When PE multiples are 20-plus, those seemingly small changes imply huge corrections

There’s more but I think you get the point.

Recession is the worry. Most economists are only bumping up their probabilities of a recession this year. The Atlanta Fed is telling us it’s already here yet most economists only moved their probabilities from 10-ish percent to 30-ish percent. I don’t know what they’re collectively smoking. Polymarket recession probability jumped to 56% today, up from 39% on Mar 31.

If economists are in the 30-ish percent camp and the online market is 50-ish percent, you know the global financial markets aren’t far away from that range.

So here’s the key takeaway, *if* a recession is coming, the markets *still* aren’t priced for it. Pain will continue.

I wish I had better things to say. The market is still in partial denial about what’s happening. I think markets still think that Trump will get concessions from all the other countries in a mere matter of days and all the tariffs will go away like a bad dream.

One can never say never but that is a wing-and-a-prayer kind of theory. I certainly don’t think you bet your portfolio on that scenario.

The world changed Wednesday after the close. People and markets are still adjusting to that change… and significant pockets of investors are in denial. That’s not a recipe for a bounce.

Last point.

It doesn’t matter if the tariff gambit is a wise strategic move or a stupid blunder. Strip the value judgements out of your thought process. In the moment, in the here and now, this is a recessionary action that is smothering economic activity. This is what bear markets are made of.

A new bull will only show up once the market starts to perceive economic activity is on the upswing. That ain’t happening anytime soon.

See you Monday, have a great weekend.

-Mike

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