Control Panel: Will stocks continue to rebound?

Investment Analysis Clubs Macro Economic Trends and Risks
1

https://www.wsj.com/finance/recession-risks-stocks-investors-e77c11be?mod=hp_lead_pos1

What Recession? Stock Investors Expect the Good Times to Continue

S&P 500 is now down just 3.3% for year, reflecting hopes for tariff rollbacks

By Jack Pitcher and Sam Goldfarb, The Wall Street Journal, May 3, 2025

  • Despite recession warnings, the stock market is up in recent days, with the S&P 500 erasing losses that came after the unveiling of tariffs.

  • Economists worry that tariffs, especially on imports from China, could raise prices and slow growth.

While stocks rebound, concerns linger as big tech companies drive gains and futures indicate expected Federal Reserve rate cuts…

The S&P 500 just wrapped up a nine-day streak of gains—its longest since 2004—rising around 10% to erase the sharp losses that followed the president’s unveiling of the tariffs last month. It has now declined just 3.3% for the year. Bond yields and the dollar have stabilized, suggesting that investors aren’t that worried about what comes next. …[end quote]

Investors are relentlessly optimistic. They seem to have the attention span of a gnat. Or maybe they think that President Trump will negotiate away the tariffs that are due to be applied in 90 days.

Almost every chart is saying, “Whew, glad that’s over. Nothing to worry about now.”

However…
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 was 1.1 percent on May 1, down from 2.4 percent on April 30. After this morning’s releases from the US Census Bureau and the Institute for Supply Management, the nowcast of second-quarter real personal consumption expenditures growth and real private fixed investment growth fell from 3.3 percent and 1.4 percent, respectively, to 1.9 percent and -0.7 percent.

The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, continues to gradually tighten.

The unemployment rate stayed the same at 4.2%. The Fed won’t loosen the fed funds rate until unemployment rises, regardless of what the market thinks, since inflation remains above their target.

It’s too early for the impact of the tariffs to be seen in consumer prices and availability.

The METAR for next week, which is a short-term forecast, is sunny. The trend is for more risk-on market behavior.

Wendy

11 Likes
2

Or, maybe, the market has the sense that, with the Billions in new tariff revenue being reported, they are more confident of another big tax cut for the “JCs”. They care not one whit what happens to the Proles.

Of course, that is just a theory.

Steve

4 Likes
3

The chalenge will not only be inflation, but availability. In the casee of 5-Below, EVERYTHING is made in China. I just visited a TJ Max this morning and noticed that the only iten in their entire kittchen department not made in China was a pile off three Lodge cast iron frying pans. I haven’t beedn to a Harbor Freight recently, but managemen t has to be in panic mode.

At 145% +25%, we haven’t levied tariffs on Chinese products, pragmaticly, we have applied a trade embargo as a sanction. While they can likely hold their breath longer than we can, in the interum, we are destroying multiple US businesses along the way and forcing those who can least aford it to pay more for or go without products in order to pay for a better tax deal for those at thee top of the food chain.

Jeff

10 Likes
4

I was at Target last night, for some skivvies. Made in 'Nam. Picked up some socks too, made in El Salvadore. Mosied through the electronics department. The shelf for smaller size TVs had (1) 32" Roku set, otherwise bare. Fortunately, I haunted the thrift stores last year, and have three spares.

Thought occurs to me, having shipped brown people to the El Salvadore gulag, how about using them as forced labor, to make more skivvies for USians?

Decades ago, when motel tool sales were a thing, I picked up a little socket set made in Sri Lanka.

The new tariff on Indian goods is 26%. As noted before, Indian industrial pay rates are so low, they make Mexicans look rich. Get ready for Harbor Freight to start carrying brands like Ralli Wolf.

Steve

3 Likes
5

Jeff,

If you still have my email address, send me an email. I am planning a trip to Antigua Guatemala and want to buy trip insurance. Old people always getting sick can’t trust ‘em for two weeks!

Some how I have lost yours.

Cheers
Qazulight

1 Like
6

The market high was set on 2/19/25 at 6147.43 so according to that we are still down 7.5 percent with the S&P500 at 5686.68. We still haven’t made it above the 200sma and I expect this week to be choppy, but if we get above the 200sma (Black line) and keep going then we are out of the clouds and back into blue skies.

image
image1586×853 150 KB

3 Likes
7

Wait till the beautiful Budget Bill when they cut medicaid and give the top a tax break. People are going to be getting squeezed every which way but loose. I want to build an RV garage and was talking to a contractor and he told me not to worry about wood tariffs, where else is Canada going to sell it’s wood? I just laughed and told him I was going to hold off. But really, people do not understand how tariffs work, but they are about to.

10 Likes
8

Dear Andy,

Thanks for posting that chart. There are two different targets for double tops. The 200 ma and the actual top.

Who knows.

But it will be another top and the market will fall again.

I will not bet on one trading day to the 200.

I do not trade. So I wont bet on the prior top.

The chart has gone to hell and the bottom to be is not in.

Now the real wager…would this be a medium length great depression with a bottom in 1.5 years? Or would this be a longer term great depression with a bottom in 3 years?

If people are starving you have your answer.

This is happening because we lack any intelligence.

Corporate taxes no matter what or when still have to rise.

9

Could be, I don’t try to guess I just follow along with the market but if the low gets above the 200sma I will be very happy.

10

Dear Andy,

I am not using TA for the reasoning that the bottom will be a lot lower.

I am looking at the values, economics, and business climate. I am looking at historically what happens under these conditions.

While Trump sees a 1921 depression, we are at risk for a 1929 depression. Values were not all that high in 1920.

11

I have no clue what Trump will do day to day let alone in a year so I am just taking it day by day. I thought we already would have another leg down but I do not even trust my own forecasting.

12

I am looking at the whole thing and see something quite different. I see the Post WWII world order ending.

I do not know what the next order will look like, nor do I know when it will appear.

I will note that the time from the fall of the Roman Empire to the rise of the west is measured in centuries not decades. For most of that time, the world that Rome had ruled was much worse off without Rome than with it.

On a shorter time frame, the fall of the Austro Hungarian empire did not make life great in its territories either.

The only outlier to bad outcomes after the fall of an empire is the fall of the British Empire. This is of course because the USA rose up in its place. I will note that many, especially African colonies faired poorly after the fall of the British Empire.

What I am saying is that there may be no recovery this time. From 1929 we breached the Dow Jones high in 1952. (However, this is a nice analysis that says someone that invested in 1929 at the peak would have recovered their money by 1936.)

The bear market that started in 1966 was much worse. If someone had invested at the peak, the real return after inflation was 0 in 1982. 17 years, no gain.

But I am pretty sure that if you check whatever the Austro-Hungarian market was, or whatever the Roman market was, it never recovered.

Never is a long time. On the other band the rise of the west is now 750 years old.

Just in case someone book marks this post, let me be clear. I am not saying the west will fall. I am saying it looks like the time of the west ruling the world MIGHT be at hand.

Cheers
Qazulight

9 Likes
13

The rest of the world has a problem if the US raises the corporate tax rate. It is our turn if you will, or the nature of econ, that we get demand side economics. We should become the major industrial power supplanting China…but we are wasting four years.

14

@WendyBG
I sincerely appreciate the work you do every week for these Control Panel updates. Especially with the added stresses you have going on in your life at the moment.

But I’d be remiss if I didn’t point out that we may be getting into uncharted territory here for a while.

All of our economic history - macroeconomic and stock markets - is based on the assumption of political leadership making rational decisions about things that affect the economy. For example, if a President want to promote “X”, the logical things to do would be “A” “B” or “C”. And those things would all have some kind of logical impact on this random subject “X”. Some may be more effective, some may be less, and there would certainly be discussions about what side effects each of these logical options would have.

I’m not sure we can make that assumption today.

Political leadership doesn’t seem to be making decisions in the same way as leadership in the past has done. Actions are taken that seem to have no logical connection to the stated goals, and sometimes seem unconnected to economic reality.

This has the potential to throw a lot of monkey wrenches into the models that have been developed over the last several decades. I’m not suggesting that we just toss those models out. Instead I’m suggesting we keep our eyes and ears open to ways that our existing models may no longer work in our current world.

Economics is very much influenced by psychology. Those who might be considered thought leaders can simply say something and it can have an effect on the markets and the economy without actually doing anything tangible. The Fed has famously used “jawboning” in the past to try to influence interest rates, and have had some success with it.

What happens when those in power say one thing and then actually do something else? Or do something without talking about it? How would that effect our mental and mathematical models of the economy?

I guess my bottom line message is to be careful out there. We have nothing better than our well tested and well know models. But be aware that those models may no longer be as predictive or as useful as they once were because of changes in the unstated assumptions upon which they were built.

–Peter

12 Likes
15

What happens when someone in the administration says Hey we could all make a billion dollars if we just did this? Like making your own Crypto Meme coin and then signing an Executive order on Crypto. There are so many ways to make money when you are the President.

5 Likes
16

True. But that’s not really the issue I was trying to address.

17

It goes along with it, it makes them unpredicatable. It’s all wrapped up in one stinking ball and then you realize that none of it has to make sense and you can’t predict anything that is going to happen because somebody, like China, could say “Hey I will let you build a resort town for free if you take off the Tariffs and Poof, no more tariffs” Corruption entangles everything they touch in corruption, nobody and nothing gets out untouched.

2 Likes
18

Dear Pete,

We are going into China’s position producing for the world as the low cost producer. We do not have the same trading needs. We do need to spur innovation in manufacturing at home to under cut all other producers. This means economies of scale.

It is not that the decisions made are irrational but sudden. Like throwing us into the deep end of the pool to sink or swim.

It is not psychology.

The tax structure is the main worry. The current promises are desperately wrong.

19

Right!

I have always said that politician do not matter to economics like cheer leaders do not matter at football games. Unless the cheer leaders jump the fence and steal the first down markers.

It always, in the past, seemed possible but improbable.

Cheers
Qazulight

2 Likes
20

Some countries simply do thingss more efficiently than others. If the US had to depend on domestic production, the average standard of living would be much lower. That’s why there is world trade. To simply start a trade war because other countries are more efficient and refuse to buy products which we can’t produce economically simply makes no sense.

Today’s ideas floated on the nation’s “reality” show are to put a 100% tariff on films produced outside of the US and to reopen Alcatraz so that we can put our nastiest prisoners in a proper “movie set”. As far as the water barrier to escapees is concerned, I know an 80-something year old guy who swims to Alcatraz and back each year on his birthday (though admittedly, both he and his wife have been extreme athletes all their lives).

Jeff

10 Likes