President Trump has outlined many goals for his administration, and they include finding an end to the Russia-Ukraine war, peace in the Middle East, and trade agreements that lead to a fair and level playing field for the US. However, these goals may be more difficult than President Trump imagined. Trump’s 100th day in office will take place on April 30, 2025, and it would not surprise us if the President expected the impossible and wanted to have all of these items completed by then. But it is not to be. It was always ambitious, but there were roadblocks and minefields in every direction. Even President Trump’s goals of maintaining a safe border and eliminating government waste and redundancy are being countered by partisan legal hurdles.

Obsessed

Mediating a truce between President Vladimir Putin and President Volodymyr Zelensky must be frustrating because neither leader seems willing to concede anything. If this is true, there can be no negotiation. And this annoyance is clear from a statement by Secretary of State Marco Rubio that if progress toward a peace accord cannot be made in coming days, the US might “move on” from efforts to end the conflict. If the US exits the negotiation process, it could either force a real negotiation to begin or unfortunately result in Ukraine falling to Putin. The fall of Ukraine would be a disaster for Europe and the Western world.

However, the media is not focused on Europe or the Middle East, it is obsessed with tariffs. Note the definition of obsessed: to preoccupy or fill the mind of (someone) continually, intrusively, and to a troubling extent. The world is so obsessed with tariffs that as a contrarian by nature, we believe it is troubling and therefore important to look at the larger picture. Financial history suggests that whenever a consensus opinion is totally one-sided, it is usually wrong. And in a display of how emotional (opposite of rational) the current marketplace is, comments by President Trump that he does intend to fire Jerome Powell (we doubted that would happen) and by Treasury Secretary Scott Bessent indicating he believes there will be a de-escalation in U.S.-China trade tensions (we hope so) resulted in a massive 1,016.57 jump in the Dow Jones Industrial Average. If this is all it takes to move the markets more than 2.5% in a day, imagine what would happen if some positive news does appear!

To date, economic data has been impressive. Last week we reported the positive news on the inflation front with the CPI, PPI, and import/export indices all showing a sharp deceleration in inflation. This week’s reports show an economy that is stronger than expected.

Total retail and food services sales grew 4.6% YOY in the month of March and 4.1% YOY in the first quarter. In March, motor vehicles & parts grew 8.8% YOY yet sales excluding vehicles grew a healthy 4.5% YOY. In March, furniture and home furnishings store sales soared 7.7%, health and personal care sales rose 7.2%, nonstore retail sales grew 4.8%, miscellaneous store sales increased 4.7%, and food services and drinking places rose 4.8%. Gasoline station sales fell 4.3% YOY. Real retail sales rose 2.1% YOY, which was the best year-over-year growth rate since February 2022, or the pre-pandemic era. See page 3.

Industrial production fell 0.3% month-to-month in March but increased 1.3% YOY. Manufacturing output expanded 0.3% in March following a 1% increase in February and mining output climbed 0.6%. A 5.8% drop in utilities output was the drag on total production in March, but this decline was due primarily to warmer-than-expected weather. Overall, output increased at a solid annual rate of 5.5% in the first quarter. Economists will be monitoring industrial production for signs of weakness due to uncertainty regarding President Trump’s tariff policy; but to date, US industrial activity is relatively robust. See page 4.

The residential housing market remains in a slump, but the National Association of Home Builders (NAHB) index for March was stable and the headline index increased a point to 40. Single-family sales rose 2 points to 45 and traffic rose 1 point to 25. As in almost every forecast with expectations, expected 6-month sales declined 4 points to 43. Housing permits and starts have been erratic in the last two and a half years due to higher and volatile interest rates. Nevertheless, new home permits fell a mere 0.2% YOY in March to 1.48 million units. Housing starts rose 1.9% YOY to 1.32 million units, which was the first year-over-year increase since August 2024. See page 5.

We were also encouraged by the first quarter earnings announcement from 3M Company (MMM – $136.33), which jumped 8.12% on a closing basis, after the company reported impressive first quarter results. This diversified technology company showed solid sales gains in the US and China as well as margin improvement. More importantly, the company stated it is not lowering 2025 guidance but is adding a “tariff sensitivity” to show how much tariffs could lower its current forecast. It expects earnings of $7.60 to $7.90 a share this year, but tariffs could lower this by 20 to 40 cents a share, or as much as 2.5% to 5%. In our view, this quantifying of the potential tariff impact could help lower the anxiety surrounding tariffs.

Meanwhile, analysts are rapidly lowering earnings forecasts for this year and next. Both S&P Dow Jones and LSEG IBES have finalized consensus earnings estimates for calendar 2024 at $233.36 and $242.73, respectively. The S&P Dow Jones estimate for 2025 fell $1.04 this week to $264.23 and the LSEG IBES estimate fell $1.48 to $266.02. Similarly, the 2026 consensus estimates fell $0.97 to $302.28 and $1.66 to $304.11, respectively. LSEG IBES has a new estimate for 2027 of $342.84, down $1.46, this week. Overall, IBES estimates have declined more than 1% in the past three weeks. See page 7. If this continues it is likely that analysts will overshoot the negative impact of tariffs on corporate earnings.

However, even as earnings forecasts decline market valuation is improving. Incorporating 2026 S&P Dow Jones estimates, the current 12-month forwardPE multiple is 17.5 times and below its long-term average of 17.9 times for the first time since November 2023. When this PE is added to inflation of 2.4%, it comes to 19.9, which is within the normal range of 15.0 to 24.1 for the first time since September 2023. See page 6.

Although economic data continues to display a stable and resilient US consumer and economy, there are several worrisome issues in the financial markets. The dollar has dropped below $100 for the first time in three years. This decline will make imports more expensive and exports more difficult and therefore it could be more negative for US trade than Trump’s proposed tariffs. Plus, there have been issues in the Treasury markets in terms of a lack of liquidity and therefore we are watching the SPDR Bloomberg High Yield Bond ETF (JNK – $93.50) for a sign of financial stress. It has been falling too, signaling a rise in high yield interest rates. The bond market has often been the trigger for equity market declines and both of these charts are worthy of our attention. See page 8.

There was little change in our technical indicators this week and our view of the equity market remaining in a one-to-three month trading range bound by the intraday lows of April 7 or 8 and the 200-day moving averages in the various indices is also unchanged.

Gail Dudack

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Being strong-willed and unpredictable may be excellent characteristics when negotiating deals with businessmen and adversaries, but the stock market and the financial media are having a difficult time understanding and coping with President Trump and his tariff policy. The stock market, on the other hand, after the initial shock of seeing how high and wide-ranging initial tariffs proposals were, appears to be stabilizing and recovering from its April 8, 2025 lows. This does not mean we would rule out another test of the lows in the near future. In fact, a retest of the lows would be a normal and healthy process. What would also be normal after the recent panic selloff is for the popular indices to remain in a trading range for three to six months as investors digest the long-term impact of Trump’s policies. In our opinion, it may take three to six months to see how trade negotiations and tariff implementation play out in the global economy and in corporate earnings.

The rough boundaries for an intermediate-term trading range in the equity market would be the intraday trading lows of April 7 or April 8 and the resistance at the 200-day moving averages in the various indices. For the S&P 500 this translates into a low of SPX 4835 (the April 7^th intraday low) and a high of 5750 (the current 200-day moving average). This represents a tradable 19% intermediate-term range. See page 12. However, by the end of the year, we believe the S&P 500 can better its 200-day moving average.

One of the more disturbing price trends in recent weeks has been the weakness in the dollar. While everyone frets over tariffs, which may or may not be implemented, the weakness in the dollar, if it continues, will make imports more expensive. Hopefully, the dollar will rebound once markets calm down and the unwinding of leverage is completed; nonetheless, holding at the $100 level is important for the long-term trend of the greenback. Conversely, bond market volatility has also made headlines, but the 10-year Treasury yield, now at 4.35%, appears to be stabilizing. The technical chart suggests the yield is currently at the midpoint of a 2-year trading range. See page 11.

Last week’s AAII survey showed bullishness rose 6.7% to 28.5%, erasing the previous week’s loss, and bearishness fell 3.0% to 58.9%. Last week’s 61.9% bearish reading represented a new high for this cycle and sentiment readings continue to exceed the bull/bear split of 20/50 which is rare and favorable. Equally important, the 8-week bull/bear spread is at minus 32.8% and the most positive since the October 2022 reading of minus 33.5%. See page 15.

And this was not the only “extreme” reference to 2022. The University of Michigan consumer sentiment survey for April showed that expectations fell from 52.6 to 47.2. This reading is even lower than the 47.3 recorded in July 2022 and the 47.4 reported in August 2011. Note that both of these prior readings appeared shortly before significant lows recorded in October 2022 and October 2011. Again, this suggests that the extremes seen in a variety of technical and sentiment indicators point to the market being at or near an important low.

Nevertheless, we have often pointed out that there is a huge disparity between Democrat and Republican sentiment in various surveys and underlying University of Michigan data shows that less than 20% of respondents surveyed this year self-identify as Republican. It could be that Republicans are fearful of self-identifying, or it could mean that the survey has a selective bias. This could be an important distinction since the University of Michigan current sentiment index for Republicans is still rising but the same index is falling for Democrats. See page 5.

According to the University of Michigan, the median consumer expectation for inflation in the next year rose from 3.3% in December to 4.3% in January, to 5.0% in March, and is preliminarily estimated to be 6.7% in April. This is a massive swing in inflation expectations. However, the Federal Reserve of NY’s Survey of Consumer Expectations (SCE) showed one-year inflation expectation was 3% in December, 3% in January, 3.13% in February and 3.58% in March. Meanwhile, the SCE shows the household’s 3-year median expectation for prices has been unchanged at roughly 3% in the same time period. We find the disparity between these surveys is striking and a bit disturbing. Analysts can only be as good as the quality of the data they are analyzing. The University of Michigan seems concerned about this disparity as well. It wrote “Partisan Perceptions and Sentiment Measures” on April 11, 2025 which stated that their survey has been consistent over time and concluded that “Proportions of the three political groups (Republican, Democrat, and Independent) in 2025 are generally within the historical ranges seen since 2017.” This is surprising since the accompanying chart in this document shows that Republicans were roughly 25-27% of respondents in 2017 and were well under 20% in 2025. (Actual percentages were not provided.) See page 8. In our view, we believe consumer surveys are much like recent presidential polls and may not be a true reflection of actual voters or consumers. Polls and surveys, however, can sway consumer, investor, or voter perceptions and this is dangerous. For this reason, retail sales reports will take on added importance in coming months.

But there was excellent inflation news this week. Import prices were up 0.9% YOY in March and prices for Chinese imports fell 0.3% YOY. Headline CPI decelerated from 2.8% YOY to 2.4% YOY and core CPI falling from 3.1% to 2.8% (rounded up). In short, headline inflation is edging closer to the Federal Reserve’s target of 2%. Moreover, the CPI is already below its long-term average of 3.7% and its 40-year average of 2.85% YOY. Plus, we noticed that in the March report the energy price index fell 3.3% YOY with WTI prices down 14% YOY. In April, WTI prices are down 25% YOY which suggests lower energy prices should continue to dampen headline inflation in next month’s report. See page 3.

All core CPI indices have been falling in recent months. In March, all items less shelter (1.5% YOY), all items less food and shelter (1.1% YOY), all items less food, shelter, energy, and used cars and trucks (1.8%), all items less energy (2.8%), and the Fed’s favorite index — all items less food, shelter, and energy (1.8% YOY) — are well below 3%. Even troublesome components like services (3.7%), health insurance (3.1%), medical care (3.0%), and motor vehicle maintenance and repair (4.8%), are down from recent levels of 5%-6% or higher. Only the other goods and services index (3.8%) rose in March from 3.3%. See page 4. ETFGI, a leading independent research and consultancy firm known for its expertise on global ETF industry trends, recently reported that net inflows to the ETF industry in the United States were strong in March and for the first quarter inflows set a new record of $298 billion. This exceeded the previous record of $252.23 billion set in the first quarter of 2021 and the third highest quarter of $232.18 billion in the first quarter of 2024. As result, by the end of March, assets in the US ETF industry were $10.4 trillion, the fourth highest in history, just slightly below the record $10.73 trillion set in January 2025. We found this report to be reassuring since it is the opposite of current media coverage suggesting that global investors are running from US assets. In recent days pundits began to question whether American exceptionalism is over. Thoughts of the end of American exceptionalism are depressing; however, actual data does not support these theories.

Gail Dudack

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Despite Thursday’s 587.58 point decline in the Dow Jones Industrial Average, NYSE volume was back in line with the 10-day average and downside volume was 84% of total volume. This was well short of the 91% down day seen on April 4. In sum, the equity market is retesting last week’s low on lower and less intense selling pressure. This is positive from a technical perspective.

As we noted yesterday “It would not be a surprise if some hedge funds continue to face liquidity problems in the near future. Therefore, investors should expect more unwinding and more volatility in the days ahead.” The recent turmoil seen in the financial markets plays havoc with highly leveraged portfolios and leverage has the potential of creating forced buying and forced selling. More importantly, it can lead to severe liquidity problems for some money managers which could translate into more panic selling. In other words, some market moves are liquidity-driven and not economically driven, and it is important to understand there is a difference between the two. Liquidity-driven declines are short dramatic downdrafts and represent opportunities, whereas economically driven moves can be longer lasting moves.

In terms of economically driven moves, this week marks the start of first quarter earnings season and earnings forecasts will play a major role in the market’s stability or instability in the weeks ahead. In times of extreme stress and uncertainty, it is helpful to look at the history of trailing PE ratios at market lows — not to define a price target — but to look at worst case scenarios. The current trailing PE ratio is 21.9 X and the long-term average is 16.1 X. The 16.1 multiple is too low, in our view, since the current 2.4% inflation rate is below average. The trailing PE ratio at the September 2022 low was 17.6 X and with the S&P/Dow Jones earnings estimate for the end of the second quarter currently at $244.62, this translates to SPX 4305. The intraday low on April 7, 2025 was 4835, or 11% above SPX 4305. (Note that the 10-year average trailing PE is 20.8 and the 20-year average is also higher at 18.8 times.) The current 12-month forward PE is 17.3 times and already below the long term average of 17.8 X. In summary, as the equity market retests its recent low, it is also defining good long-term value.

Gail Dudack

See Attached for Chart

The April 9, 2025 session generated a 97% up day on NYSE volume that was 1.43 times the 10-day average and it followed the April 4^th 91% down day on volume that was 1.64 times the 10-day average. This combination of panic/forced selling and recovery suggests that the worst of the downside is over. But history shows that lows tend to be retested, and a 97% up day does not mean the indices will not retest and make a lower low. It does suggest that a bottoming process has begun.

Recent market action has demonstrated how leveraged many investors, particularly hedge funds, are at the present time and both the April 4 and April 9 trading sessions included unwinding of positions and short covering. It would not be a surprise if some hedge funds continue to face liquidity problems in the near future. Therefore, investors should expect more unwinding and more volatility in the days ahead.   

Keep in mind that yesterday’s 2963 point increase in the Dow Jones Industrial Average took place after the Trump administration announced a partial 90-day reprieve on its tariff policy. In short, nothing has fundamentally changed, and the financial markets are still vulnerable to daily news items. Equally important, this week begins first quarter earnings season, and corporate guidance will be key to the equity market’s stability.

In sum, the worst of the decline is behind us in our view, but history shows that after a panic selloff the indices tend to trade sideways for the subsequent two to six months – testing the recent lows and resistance being the level prior to the panic. In the current market this would equate to a range in the S&P 500 of 5800-4900.

For the record: yesterday’s 97% up day equals the 97% up day recorded on March 23, 2009 and was only exceeded by the 98% up day recorded on June 10, 2010.

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The breadth and level of tariffs proposed by President Trump on “Liberation Day” took us, and the world, by surprise. It represented a major shift in policy and as a result, global markets responded with record declines. Pundits have been theorizing and criticizing the fundamentals of the “formula” the White House used to explain the various tariff levels on individual countries, but in our opinion, this discussion misses the entire point. There may be a purpose behind the arbitrary tariffs placed on many countries and it is not just about trade. For example, the tariff on Vietnam is extremely high because of its role in the rerouting of Chinese companies’ supply chains. If we are right, President Trump may be trying to unwind the 25-year world-wide political movement of “globalization” on purpose. The theory behind globalization is that “the interdependence and integration among the economies, markets, societies, and cultures of different countries worldwide would expand the global economy and create societal benefit.” Plus, proponents felt that bringing China into the global economy would open the Chinese people to the Western civilization and potentially lead the Chinese government toward a more democratic society. It did not.

In reality, globalization provided a huge boost to the Chinese economy and made China the largest exporter in the world, due in large part to its abundance of cheap (and sometimes with forced or child-age) labor. After 25 years of globalization, China is now a super-economic power, buying and controlling resources such as oil, gas, and minerals, throughout Africa, South America, and the Middle East as part of its Belt and Road Initiative. Note: China has also been buying up American farmland. It allows American companies like Apple to manufacture in its country but subsequently manufactures its own similar cheaper product. (Check the “Made-in-China” website.) Yet, China is still treated like an emerging country by many world agencies. For example, the Paris Agreement created a fund to help poorer countries lower emissions, and it was initially funded by the US, Japan, the UK, and EU members, but not super-power China. (China is also the biggest polluter in the world.) But the negative consequences of outsourcing to China became blatantly obvious during the pandemic. It was the first time most Americans realized their life-saving prescription drugs were manufactured in China. This is ironic since several pandemics including the bird flu and the COVID-19 virus first appeared in China.

In sum, over the last 25 years China not only devastated the US manufacturing sector but has strategically become a powerful and controlling force in a wide range of economic areas. This administration may see this as a matter of domestic security. We now believe President Trump, knowing that China’s domestic economy is weak due to a property-market bust, feels it is time to bring manufacturing, and economic prosperity, back to the US by leveling the playing field of trade. If we are correct, (and the White House will not admit to it), President Trump is playing the long game and there may be more pain ahead for investors.

On the positive side, tariff negotiations could go well and the game of chicken that Presidents Trump and Xi are currently playing could soon end.

From a technical perspective, there are a number of extremes that suggest the equity market should be in the throes of making a significant low. The Vix Index (VIX – $52.33) reached an intraday high of 60 this week, the highest since August 5, 2024. The SPDR Bloomberg High Yield Bond ETF (JNK – $91.23) fell to an intraday low of 91.11 the same day. See page 11. Last week’s AAII bull/bear survey showed bullishness fell to 21.8% and bearishness rose to 61.9%. This was the third highest bearish reading in history, and it was last higher on March 5, 2009 (70.3%) at the financial crisis market low. See page 15. The 10-day average of daily new lows is currently 696, the highest since the September-October 2022 low. See page 14.

The peak-to-trough declines in the S&P 500, Dow Jones Industrial Average, Nasdaq Composite, and Russell 2000 index are 18.9%, 16.4%, 24.3%, and 27.9%, respectively, on a closing basis. In other words, the market has had a bear market decline in seven weeks and most of it in the last four trading sessions. At present, he S&P 500 and the Dow Industrials are testing their 2020-2025 uptrend lines. But a similar trendline is significantly lower at 13,500 for the Nasdaq Composite. The Russell 2000 broke well below its pivotal 2000 resistance/support level and is now trading substantially lower. The next substantial support level is the 2022-2023 support range of 1640-1650. See page 12. Overall, these trends look precarious.

Our 25-day up/down volume oscillator is at minus 1.80 this week and, to our surprise, is not yet oversold. However, our oscillator only uses NYSE volume in order to eliminate the noise from program and high frequency trading. Note that the equity market rallied after this indicator reached a level of negative 1.84 on March 13, its lowest level since the market weakness seen in December/January. Since late 2023, the equity market has rallied prior to reaching an oversold reading of minus 3 or less, so upcoming trading sessions will be a test to see if this pattern continues in 2025. See page 13.

Finally, but equally important, the April 4^th session was a 91% down volume day. This is a reflection of extreme panic, and these 90% down days are helpful in a bear market. They usually materialize in a series, which is the bad news. The good news is that after a series of 90% down days, the appearance of just one 90% up day indicates that the worst of the decline is over. Typically, this helps to identify the low and the beginning of a bottoming process. To date, a 90% up day is missing.

Recent economic releases include the March jobs report which indicated healthy year-over-year employment increases in both surveys. See page 3. The increase in the unemployment rate was merely a decimal-rounding rise to 4.2% in March; but the interesting underlying data showed that the increase in unemployment was only those with a bachelor’s degree or higher. This is a complete reversal of recent trends. See page 5. The small business optimism index fell 3.3 points in March to 97.4, slipping below the key 98 level. Labor costs, the single most important problem for business owners, fell one point in March to 11%, just two points below the record 13% seen in December 2021. See page 6. The ISM nonmanufacturing index fell from February’s 53.5 to 50.8 in March, marking the 55th month of expansion in the 58 months since June 2020. Nevertheless, the service sector expanded at a slower pace in March. See page 7.

Our concern is consumer credit. In February, both revolving and nonrevolving credit contracted on both a year-over-year and 6-month rate-of-change basis. This is only the fifth time since 1960 that consumer credit contracted on a year-over-year basis and each of these previous contractions happened during, or after, a recession. (Not all recessions displayed negative credit growth.) But with that perspective, the current decline in consumer credit growth is ominous and suggests a recession-like environment existed in February, prior to the Trump tariff environment. One of the goals of the Trump administration is to get consumer credit interest rates down, and that is occurring, however, at a slower pace than seen in the Treasury market. See page 8. The recent decline in the equity market is improving valuation, but not to table-pounding levels as of yet. The trailing 4-quarter operating multiple is now 20.7 times, down 5 points in the last three months, and below the 5-year average of 21.5, but still above the 50-year average of 16.8 times. The 12-month forward PE multiple is 16.3 times and below its long-term average of 17.8 times. When this PE is added to inflation of 2.8%, it comes to 19.1, which is down and within the normal range of 15.0 to 24.4 for the first time in 17 months. In short, the overvaluation of the last two years in unwinding.

Gail Dudack

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