Outlook clouded by US tariffs; equities manage to stop the slide (for now); USD up slightly. Fed to cut twice in 2025; ECB April call 50/50. Important updates this week: US Manufacturing and Services PMI, Consumer Confidence, GDP, and last but not least the Core PCE Price Index (the Fed’s preferred measure of inflation). Should the conflict in Ukraine or the Middle East escalate, shift to caution (flight to quality). The biggest tail risk is the US Economy falling into a recession (20% chance in 2025), resurging inflation, revenues/earnings not matching forecasts, followed by damages done by tariffs, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 24th – 28th March 2025

Economic data highlights of the week

Mon: FR Manufacturing PMI (3/25), DE Manufacturing PMI (3/25), EU Manufacturing PMI (3/25), UK Manufacturing PMI (3/25), US Manufacturing PMI (3/25), US Services PMI (3/25), UK BoE Gov Bailey Speaks, JP Monetary Policy Meeting Minutes

Tue: GR – Holiday, DE Ifo Business Climate Index (3/25), US CB Consumer Confidence (3/25)

Wed: UK CPI (2/25), SP GDP (4Q24), UK Spring Forecast Statement, Atlanta Fed GDPNow (1Q25)

Thu: US GDP (4Q24), US Initial Jobless Claims, US Fed Balance Sheet, JP CPI (3/25)

Fri: UK GDP (4Q24), UK Retail Sales (2/25), FR CPI (3/25), SP CPI (3/25), US Core PCE Price Index (2/25), CA GDP (2/25) 

Performance Review

Source: Google

InflectionPoint reports:

* Finally some stability in a week dominated by many leading central banks, Japan, the US, the UK, and Switzerland. Fed Chairman Jay Powell said that the outlook will become more complicated in the face of the tariffs the US Government is levying on other countries and that the Fed still expects to ease two times during the year. The market immediately positioned itself for those two cuts expected by December 2025. We are almost through 1Q25, and soon – in about three weeks, we will see what damage, if any, the agenda of the new administration will have done to the US Corporations and the US Economy, even though that might hit later as opposed to earlier in the year. However, I suspect, as usual, that the guidance will be more important than the actual results. Apart from the Swiss National Bank, which cut rates to 0.25% (lower than Japan!), all the other institutions stayed on hold, considering inflation threats and an uncertain outlook. On Friday we will get an update from the Fed’s preferred measure of inflation, the US Core PCE Price Index, after the CPI and the PPI both came below forecasts. Elsewhere the dollar managed to gain some of the lost ground vs the Euro, and government bond yields nudged slightly up. It is important to look at forecasts for GDP numbers as the Goldman Sachs report pointed to a deceleration of the economy – so far so good, but still early days. The overall feeling is that the slide has stopped for the time being, but it is too early to say whether there will be another leg down, so for the time being I’m still cautious, although I welcome yesterday’s (24/3) bounce. A lot of dust has yet to settle. European inflation was more benign, but still above target, so it’s difficult for the ECB to continue easing without a material improvement on that front. And the Vix has come down a bit but not enough – I think – to call this a bottom. At the same time, there is an increasing worry that the US Economy is about to enter a recession (again!), which has pushed prices lower; the mood remains atrocious, and the CNN Fear and Greed Index is still flashing fear. This would be the time to buy, in theory – in practice, no one wants to increase risk at the current levels, and most are licking their wounds. Trumponomics, tariffs, geopolitical scenarios, and the Atlanta Fed’s revised forecasts contributed to this dystopian scenario. In this immense confusion – as Beckett would have put it – I prefer to stay on the sidelines and watch what happens from one day to the next. This week, we will have important updates on Monday, courtesy of the US Manufacturing PMI and of the US Services PMI – whose low readings sunk the market in the first place, on Tuesday, with the US Consumer Confidence, on Thursday, with the latest revision to the US GDP, and on Friday, with the Core PCE Price Index. The biggest worries for (US) markets are recession, tariffs, earnings, valuations, and a further escalation in the geopolitical scenario. Keeping equities to hold, confirming US bonds as buy, downgrading European bonds to hold, and remaining positive on the CHF, which seems to be the only currency to hold no matter what, even though the SNB did lower rates to 0.25%. While the ‘earthquake’ (as I used to call a violent retrenchment or sector rotation) continues, and it may last beyond the usual two weeks, I would sell any European winners that managed to hold admirably so far, apart from defense stocks. 

* Last week we had some signs of stabilization, and at least the equity markets managed to end in the black. We are still in a correction, and even though some of the Magnificent 7 managed to bounce admirably on up days, their performance is threatened by any downturn. The current P/E ratio of 20.4x is more or less in line with the average P/E ratio of the last 5 years at 19.9x, which so far has not been violated. The Federal Reserve did not unveil any new projections, other than saying that the outlook is more uncertain, and they still expect to cut. The USD was a touch stronger and is now trading below 1.08, possibly after the US Government softened some tariffs. Watch out for April 2 when they should unveil more tariffs. I have been focusing more on the historic valuations of the S&P 500 rather than on relative ones (which are also not cheap, to put it mildly). At 20.4x, the multiple feels stretched, and although there are some echoes of 1999, it would make me uneasy to see it returning at 24x as it was then. If and when the multiple gets in line with the 5-year average, at 19.9x, there could be a technical rebound, but even using this multiple as a long-term average is preposterous and unlikely to last. Even the 10-year average of 18.3x cannot offer a sense of security. From a valuation perspective, the (US) market has lots more to fall. The slide so far has been pretty orderly, without a capitulation, which usually helps to form a low from which to start again. Be careful when the S&P 500’s multiple begins with a 2 because every downward movement will be painful and likely amplified.

*  In the latest revision, the US 4Q24 GDP clocked at 2.3%, confirming expectations and pretty much in line with the average of the blue chips’ own prediction. We will get the latest update on Thursday. The Federal Reserve was on hold in March, as expected, albeit it announced its intention to cut two more times before the end of the year. While it is very unlikely that it will cut again in May (10.8%), June looks increasingly 50/50 (62.5%), the first cut might happen in July (76.5%). The forecast for December currently prices in 2 cuts, with rates at 3.75-4.00%, one cut less than forecasted by Goldman Sachs. Be wary of aggressive Fed cuts because they might signal an upcoming recession; non-recessionary interest rate eases are always welcomed by equities. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000), and at the same time we must ascertain the strength of the AI opportunity and that of the US economy, particularly given the rise of the Chinese competitor DeepSeek, and the fact that Chinese technology is having a momentous comeback, while America’s once Magnificent 7 are now suffering a correction.

* Yields on US 10-year Treasuries have reached 4.34% and were slightly up last week, in line with European government bond yields. While in 1999 yields were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. The current forward P/E ratio for the S&P 500 is 20.4x – higher than the 5-year (19.9x) average and the 10-year average (18.3x) – it is not cheap enough to withstand high interest rates. I also note that the current high multiples are lifting the averages; I consider the 10-year average to be a more truthful picture of the multiples the S&P 500 should trade in a normal situation (if there is one!) than the 5-year. I can only hope that the adjustment from the current high multiples back to the average will be gradual because if the year 2000 is to be a guide, we face three years of hell in the process. The 2025 S&P 500 bottom-up earnings estimate is 270.90, now a bit below consensus at 277.

Source: FactSet

* After a weaker 2.3% reading of US GDP for 4Q24, we are looking for decent forecasts for 1Q25, according to the New York Federal Reserve. The Atlanta Fed GDPNow model is very much still in negative territory with a new forecast of -1.8%, way below the Blue Chips consensus which broke the 2% level and is currently around 1.7%.  On the other hand, the New York Fed’s Nowcast model, which produces a less volatile forecast, showed growth in 1Q25 at 2.72%, up from 2.69% last week. Introducing a 2Q25 forecast of 2.64%, down from 2.66% last week. While the estimates from the two Federal Reserve Banks are now diverging, I consider that of the New York Fed to be more accurate. Earnings growth for 1Q25 is 7.1%, compared with a forecast of 11.6% as of December 31st. Revenue growth is slower, at 4.2% in 1Q25 vs 5.1% as of December 31st. For 2025, earnings growth is forecasted at 11.4% vs 14.1% as of December 31st, with revenues coming in at 5.4% vs 5.8% as of December 31st. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (January 2026) 22.95%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise given such a forecast. The current level is not too far from what economists are currently predicting: a 20% chance of a recession in 2025.

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 4Q24 is now nearing its end. Here’s a list of companies reporting this week. 

Source: Earnings Whispers

Market Considerations

Source: Goldman Sachs Global Investment Research, ISABELNET.com

Source: Federal Reserve, Treasury, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Carson Investment Research, FactSet, ISABELNET.com

Source: Carson Investment Research, FactSet

Revenue growth estimates for 2025 are forecasted to grow by 5.4% (5.8% on December 31st), and earnings growth estimates for 2025 are predicted to grow by 11.4% (14.1% on December 31st), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.5% (6.4% on December 31st) and earnings to grow by 14.2% (13.7% on December 31st). As mentioned, the Fed has cut its rates by 100bp in 2024 and will continue easing. Apart from the cut from quite high levels, which will probably help make these lofty multiples seem more bearable than offering a real stimulus to the economy, it will be important to see the extent to which the Central Banks are willing to cut rates and their timeframe.  

Four highlights this week. First, we have a chart from Goldman Sachs which reminds us that at the current level, the 20x multiple might be due for a multiple expansion. While it is entirely possible, valuations are quite stretched on a historical basis. Be wary should the multiple fall below the 5-year average, as the downturn could bring it to 17-18x, with negative consequences for the market. The second chart, also from Goldman Sachs, shows that foreign ownership of US stocks has increased through the years, and is now representing 18% of the total, with Europe being half of that amount. If there is a trade war, Europeans could opt to invest in the local markets instead, aided by relatively low rates and increased defense spending. The third chart, from Carson Investment Research, shows that in the past 20 years, the market bottomed in mid-March before rising to new highs. While 20 years is too short a period to extract conclusions, it is a positive reminder of things hopefully to come. Finally, the fourth chart, also from Carson Investment Research, tells us that only two sectors, technology and consumer discretionary, have performed negatively this year. Fortunately, the market has a lot of breadth, but it pays to remind you that technology is the largest sector in the S&P 500, with a weight of 33.75%, and that consumer discretionary also includes Amazon.com and Tesla.

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing wrong was happening with the company at the same time. Timing and risk management are key. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East, although it is quieter now on both fronts. Any escalation would be negative for the markets. The peace agreement in Gaza has now just come into effect, and President Trump can possibly broker a peace agreement between Ukraine and Russia. It is indeed positive that he likes the strong performance of the US Markets as a validation of his somewhat controversial policies.

I now recommend a neutral position in equities and a long position on US bonds. For EU Bonds, I advise waiting for even better yields, while I still suggest putting together a portfolio that includes the yield of Italian Bonds and the safety of German Bunds, without neglecting Corporate Bonds. 

There are three main headline risks to what is otherwise a constructive view for 2025: i) the US economy falling into a recession or revenue/earnings not matching forecasts; ii) any damage to the economy and trade done from Trumponomics, tariffs, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); and iv) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan managed to recover some of the damage done earlier by plans of the BOJ to turn aggressive to bolster the yen – which I believe went beyond their intentions. A senior official later issued more dovish comments. As you can’t fight the Fed, you can’t fight the BOJ either – my advice is to watch any downward moves by the yen to eventually establish another entry point. For the time being, the cautious stance on the land of the rising sun persists, even though it is worth paying attention to the next developments post the hike and whether the weakness in the JPY can continue despite the interest rate differential closing in with major economies. This week it’s unlikely that the Bank of Japan will raise rates, not to shock a turbulent market already dealing with trade restrictions and higher prices.

Portfolios

Finally, I want to introduce three portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 18.5% in little more than a year, with a Sharpe Ratio of 1.5

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 18.9% in little more than a year, with a Sharpe Ratio of 0.8

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 26.7% in the last year and has outperformed the FTSE MIB Index by 625 bp in this timeframe, with a Sharpe Ratio of 1.8

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice, or simply for more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you on 7 April – the Week Ahead takes a break next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.