Wesley Chapel, FL
Whether you love him or hate him, chances are you are listening to or reading about what President Trump says.
I am reminded of a clip from the movie Private Parts about Howard Stern. You can find the clip in the nearby YouTube player. It's called “The Rating Scene.” In it, Stern’s boss, whose job is basically to get Stern off the air because he is embarrassing the network, asks about the show's ratings.
He is first told that the average radio listener listens for eighteen minutes a day and then that the average Stern fan listens for over an hour because they want to see what he will say next. Then, the boss, played by Paul Giamatti, asks about the people who hate Stern…
Ratings Analyst: “Good point. The average Stern hater listens for two and a half hours a day.”
Boss: “Look, but if they hate him, why do they listen?”
Ratings Analyst: “Most common answer… ‘I want to see what he’ll say next.’”
What can I say? The man (Trump) keeps me on my toes. He is nothing if not polarizing. And while I don’t know what he is going to say next, I will say that his negotiating playbook is pretty standard most of the time.
He tends to make demands that seem impossible to meet, only to subsequently walk back the threats later when he gets less than he originally demanded. The first time I remember understanding this was back in 2018 when he sanctioned Iranian oil, causing the price of oil to rise, only to grant exemptions shortly after to eight countries, causing the price to fall below where it was before he announced the sanctions. We’ve seen this play over and over since at least then, and we are seeing it now with the tariffs on Canada and Mexico. Yet, for some reason, the world and the market still seem to be surprised by this.
I don’t pretend to know where the tariffs will end up. I think the higher they go and the more goods they cover, the worse it will be for the American and global economies. What I do expect is a whole lot more give and take before all the dust settles.
Long-time readers know that the market can handle bad news, but it really hates uncertainty. And right now, there is a lot more uncertainty than “normal,” whatever normal is.
All this uncertainty is beginning to be reflected in stock prices.
In the chart below, you can see that the S&P 500 Index, as represented by the SPY ETF, has fallen out of the upward-sloping (yellow) channel that it has been in since October 2023. Not once in all of 2024 did it fall out of that channel, let alone go anywhere near the 200-day moving average (light blue line).
I pointed out last month that the market had basically been flat since the beginning of December and that technical traders would look to short it unless it broke out to a new all-time high above the red horizontal line. I should have added the word “sustained.” The market did break out to a new all-time high above the red horizontal line, but it was not sustained. It went from breakout to fake-out pretty quickly.
The low end of the channel did act as support for a couple of days but ultimately failed to hold. Now, we are sitting right on the 200-day moving average, which I highlighted as the area of significant support.
The index actually traded below its 200-day moving average for a little while yesterday (March 6th) but rallied into the end of the day to close just barely above. The same thing happened again today.
A couple of things are important to note. First, the 200-day moving average line is the trend, and it is still rising. So, even though in the intermediate term, the market has pulled back around 6.5%, the long-term uptrend remains intact. Second, the support or resistance of the 200-day moving average line is not precise. If the index falls below it for a day, or two, or even three, the support isn’t necessarily broken and the market doesn’t just automatically fall further from there. You can think of the 200-day moving average as more of an area of support.
In fact, if you look back to October 2023, when this uptrend began, the market had made a series of lower highs (yellow circle on the bottom left of the chart above) and ultimately dropped a little over 1% below the 200-day moving average before it finally bounced.
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The black horizontal line on the chart just so happens to be a little over 1% below the 200-day moving average and is an area that could see some additional support. I expect some volatility back and forth around the 200-day moving average before it finally picks a direction – either the bull market uptrend resumes, or support fails to hold, and the market begins to drop, perhaps at an even faster pace toward the purple horizontal line around 520.
If the market falls all the way to that purple line around 520, it would still be down only a little less than 15% from the all-time high - more than enough for a technical correction of 10%, but not quite into bear market territory, which is generally considered to be 20%.
My base case expectation is that the S&P 500 will bounce from here into the declining 50-day moving average (falling red line). From there, either it breaks out or drops back to the 200-day.
At the risk of getting a little ahead of myself here, I will say that perhaps more important to me than the percentage pullback from highs, what I will be looking for is what the 200-day moving average does. If it starts falling, then there is probably more downside coming. If it just flattens out and then begins to rise again, we’ll want to be buckling in for the next leg higher.
Neither outcome will surprise me, and neither will grinding sideways with some volatility for a while. As always, we are prepared for a wide range of outcomes.
One thing we can see from the indexes we’ve been tracking is that the market's leadership seems to be changing. At the end of the month, the so-called Magnificent Seven (Mag 7) index was down 6.1% in 2025 and 8% in February.
Something that hasn’t gotten a lot of press and might surprise you is that this bull market’s AI darling, Nvidia (NVDA), has gone basically nowhere for the past 8+ months. From the stock’s peak back in June, through the end of February, it is actually down 8%.
Meanwhile, one of the most highly touted “Trump Trades,” and Mag 7 member Tesla (TSLA), has now given back more than all of its gains since the election.
Even Fartcoin, which I discussed in my December commentary, has fallen (-88%) back to reality. That it still has any value at all is surprising.
What has not become clear, at least to me, is where the new leadership will emerge from. The market may be just taking a breather here while Nvidia and other semiconductor and AI stocks “grow into” their lofty valuations before reemerging as the leaders for the next leg higher. But for now, the entire semiconductor complex is and has been lagging. So far in 2025, Healthcare and Financials are leading the markets while Technology and Discretionary are the biggest losers.
With that in mind, let’s take a look at our macroeconomic framework, otherwise known as “The Quads.”
Inflation, as measured by the Consumer Price Index or CPI, has been accelerating for several months, but I expect that to reverse moderately over the next few months. In other words, we expect disinflation, which is not the same as deflation. We do not expect prices to decrease; we expect them to increase more slowly. Personal Consumption Expenditures, or PCE, which is the Fed’s preferred inflation gauge, has already started to show a little bit of disinflation.
CPI for February 2025 will be released next week, on Wednesday morning the 12th.
Meanwhile, the Atlanta Fed’s forecast of GDP, called GDPNow, has absolutely crashed.
Take a look.
There is a lot of data in that chart, but just look at the green line, which went from almost 4 in early February to under 2 today. That is a big swing for this type of data series.
Last month, before this massive crash in GDPNow, I said, “GDP might have flipped back to growth.” It now looks like that has reversed. GDPNow isn’t the actual number. It is just an estimate. And sometimes, it can be volatile, as we have seen over the past couple of weeks. However, if this crash in GDP holds, we will find that we are currently in the dreaded environment known as Quad 4 where both inflation and GDP are falling or slowing (see “the Quads” above).
The problem with these data is that they are only known with certainty in hindsight. When GDP and CPI are finally reported, they are always backward-looking. They tell us where the economy was last month or last quarter. So, determining where we are right now, in real time, is part art.
It sure feels like a Quad 4 out there over the past few weeks. And Quad 4, generally speaking, means getting out of (speculative) stocks! In the framework above, you’ll see that the best asset classes in Quad 4 are bonds, gold and US dollars.
On the other hand, tariffs will likely raise inflation in the longer run, so a few months of disinflation probably won’t move the needle that much.
Speaking of long-term inflation, the University of Michigan survey recently showed that the median inflation expectations over the next 5-10 years spiked to 3.5%. The median number is always reported by financial media, and it gets all the attention. But if you look at the average number, the 5-10 year inflation expectations are 6.6%!
I couldn’t make it up if I tried, as we are working on getting this commentary posted and published, Jerome Powell is being interviewed at a conference and said that “most longer-term inflation expectations remain stable.” I am not sure what he is looking at but the chart below is not exactly how I picture “stable.”
And speaking of tariffs, this chart is a little concerning.
Tariffs aren’t helping inflation expectations, and they won't help inflation reports when they finally come in. Surveys are clear that businesses are planning to pass increased costs on to consumers.
In November 2024, we rolled out a new strategy based on Harry Browne’s Permanent Portfolio. It has done very well in a short period and, most importantly, has behaved exactly as expected. It is a simple strategy that is built to last.
Over the past several days, I have been building a list of stocks that may benefit from, or at least won't be hurt by, tariffs. To be crystal clear, I haven't found any stocks that I think will benefit from tariffs. But I digress. Something that occurred to me through this exercise is how “tariff-neutral” our Permanent Portfolio is. 75% of the portfolio exports nothing, imports nothing, and experiences no foreign exchange rate risks.
For any of you who are interested in becoming more conservative, given some of what I have outlined in this commentary or just how you are feeling about the state of markets and geopolitics, please let us know. I think the Permanent Portfolio could be a great conservative option to maintain some upside potential but substantially limit your downside.
One of the holdings in the Permanent Portfolio is gold… I pointed out last month that gold has been on an absolute tear lately, nearly doubling the market return over the past year. Well, that got me thinking about how it has done compared to stocks over a longer period. So, I looked back to the year December 31st, 1999. For nearly a quarter of a century, gold has trounced the total return (which includes dividends) versions of both the S&P 500 and Nasdaq.
Over that term, gold is up 919.46% vs. only 604.23% for the Nasdaq and 554.22% for the S&P 500.
Shares outstanding of the biggest gold exchange traded fund “GLD” have still barely budged despite the relentless rise in gold price. Weird. This was true when I first pointed out golds outperformance back in June 2024 and it is still true today.
Meanwhile, CNBC ran an average of 12.4 gold-related segments per day when gold was peaking in 2011. Today? Less than 2 segments per day.
If the public ever catches on to this trend, look out!
Either way, gold is, of course, among other things, a wonderful hedge against government irresponsibility which leads to inflation and other forms of chaos.
It isn’t often that more than one client sends me the exact same interview to listen to, but that happened this month, so I thought it would be worth sharing with you. In this case, Tucker Carlson (again, a polarizing guy for whatever reason) is interviewing Luke Gromen, a very thoughtful research analyst. It is 90 minutes long and all about gold and you should check it out!
Listen to Howard Marks read the memo.
As usual, there is more I could discuss, but what I think would be far more beneficial for you, dear reader, is to read or listen to Howard Marks’ memo, “On Bubble Watch,” published on January 2nd, 2025.
Click here to read the memo.
Click here to listen to Mr. Marks read the memo. It is 35 minutes and well worth it. You can also find this wherever you listen to podcasts.
The Behind the Memo interview
Mr. Marks received so much positive feedback about the memo that a week or so ago he recorded an additional 25-minute “Behind the Memo” interview about it.
Click here to listen to the interview. Or you can find it wherever you listen to podcasts and you can find it on YouTube as well.
I urge you not to skip the memo! It is very well done and very timely. There is a reason we have a permanent link to all his memos on our website under “Resources > Reading List.” I never miss a memo and I would encourage you to subscribe and read them all!
Until next time, I thank God for each of you, and I thank each of you for reading this commentary.
Clients, I encourage you to click here to access your personalized performance portal to see how your portfolio performed vs. the markets last month.
Shane Fleury, CFA
Chief Investment Officer
Elevate Capital Advisors
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