The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
The first of many?
Overnight was dull and there was very little of note in the morning’s news. The S&P 500 opened down about 20 points but we returned to flat fairly quickly and bounced around that level until the afternoon. At that point, news of a trade deal came out of the White House. It’s a deal with India although nothing is official. Risk-on became the play of the day and a little bit of momentum emerged as well. Capital flow remains anemic, printing 75% today. Yields came in a bit across the curve and Fed cuts are priced at 97 bips for the year today, with only a 10% chance of a cut at the next Fed meeting (5/7/25).
While today was quiet, the positive noises out of D.C. with respect to tariff talk inspired further buying. The bulls didn’t control the tape too strongly but the win was definitive. Also consider that today is the 6th up session in a row and the bulls have a lot to celebrate. The chart looks better and better and the lows of April 7th look more and more like a legitimate bounce. With 500 points still to go to make new all-time highs in the S&P, dip-buyers and nervous bulls can feel better and better about jumping into the tape. They haven’t done so with a lot of capital yet, but as long as the news headlines remain helpful, I think the capital will flow.
While a trade deal with India is positive, we’ve slapped tariffs on a lot of countries. How long will the tariffs be in place before they become immaterial? I don’t know. I doubt the market has a good idea either. The bulls aren’t terribly concerned with the pending negatives. They are focused on the narrative that these tariffs aren’t going to be around for long.
I don’t know. There’s a lot of optimism built into that view. I think it’s very reasonable to think that the tariffs will be gone at some not-too-distant point. However the length of time it will take to negotiate them away is the problem. If it takes two years, which is not an unreasonable guess, that’s a lot of economic friction that we have to endure along the way.
How can stocks be attractive in that scenario?
Here’s a chart of estimated earnings for the S&P 500 in the years from 2025 through 2028.
Look at that growth!
12% earnings growth from ’25 to ’26, 10% growth from ’26 to ’27, and 8% growth from ’27 to ’28.
Tariffs? What tariffs? Recession? What recession? That’s what these estimates say.
I don’t know. There’s a difference between projected resiliency and dismissing all negatives.
I guess we’ll just have to see if circumstances force estimates to turn and contract. Until then, all the bulls and strategists see nothing but upside.
See you tomorrow.
-Mike
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