Nvidia’s earnings and guidance rock the technology boat; Nasdaq falls >3%, while US Equities manage to limit the damage. Bond yields significantly down as a result of resurfacing recession fears. ECB should cut rates by 25bp on Thursday, while the Fed will stay on hold in March. Crucial this week will be the US Nonfarm Payrolls on Friday. 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 (15% 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 3rd – 7th March 2025

Economic data highlights of the week

Mon: GR, BR – Markets Closed,  EU Manufacturing PMI (2/25), UK Manufacturing PMI (2/25), EU CPI (2/25), US Manufacturing PMI (2/25), US Atlanta Fed GDPNow (1Q25)

Tue: BR – Markets Closed, EU Unemployment Rate (1/25)

Wed: CH CPI (2/25), EU Services PMI (2/25), UK Services PMI (2/25), EU PPI (1/25), US ADP Nonfarm Employment Change (2/25), US Services PMI (2/25), US ISM Non-manufacturing PMI (2/25)

Thu: EU ECB Interest Rate Decision (3/25), US Initial Jobless Claims, EU ECB President Lagarde Speaks, US Fed Balance Sheet 

Fri: EU ECB President Lagarde Speaks, EU GDP (4Q24), US Nonfarm Payrolls, US Average Hourly Earnings, US Unemployment Rate (2/25), US Fed Monetary Policy Report, US Fed Chairman Powell Speaks

Performance Review

Source: Google

InflectionPoint reports:

* Down but not out. That’s how technology felt last week about the widely anticipated report by Nvidia, which I believe was misinterpreted. As the company grows, growth is bound to slow, and the infamous question about the margins lowering in a bit in the early stages of the year as Blackwell ramps, but recovering in late 2025, added a fuel to the fire that was already brewing to the tone of a potential recession in the US. Trumponomics, tariffs, geopolitical scenarios, and the Atlanta Fed revised forecasts contributed to this dystopian scenario. I was about to throw in the towel for equities when an in-line Core PCE Price Index, and perhaps a much needed rebound saved the day on Friday. And so we are here again, exiting from the nightmare that was the back half of February, with an earnings growth that is the strongest in 3 years and a lower multiple after another difficult week. In the next seven days, we will assist yet another interest rate cut by the ECB and the US Nonfarm Payroll, which can indeed determine the market’s direction in the short term. Also on Monday, an update from the Atlanta Fed GDPNow Model, which very surprisingly flashed red last week (while the New York Fed’s Nowcast was steady). In this scenario, all major indexes were hit, save for the Dow, and with Europe putting together the performance of a good year in only 3 months. European governments seem to be taking the rush to increase expenses for defense very seriously, as testified by the amazing results and performance of Italy’s Leonardo. Without Friday’s performance, I would have probably downgraded equities to hold while bond yields moved significantly lower on the back of the recession theme. For the next two weeks, with reporting for 4Q24 almost over, the news will be dominated by macroeconomic data like the nonfarm payroll and then US CPI and PPI. I also note that some of the Magnificent 7 stocks are in a correction, and pending a decent outcome for the market, they should rebound –  earnings have been plentiful, and estimates for 1Q25 are still positive. In Europe, the baseline scenario is that the ECB must continue to cut rates and provide massive amounts of liquidity to revive the ailing economies while European equities are shining ever so brightly. With the world’s major central banks presently in easing mode (taking into account the notable exception of Japan), the question is whether the underlying economy(es) will continue to hold and allow a continuation of the current expansion phase that started after COVID-19 dominated the news for a few years. The biggest worries for (US) markets are recession, tariffs, earnings, valuations, and a further escalation in the geopolitical scenario. Confirming equities as buy (with the weekly 3% stop), confirming bonds to buy, and remaining positive on the CHF, which seems to be the only currency to go up no matter what. Fasten your seat belts, and remember that volatility goes up and down (often very quickly). I feel that Europe should not be overlooked, even though Goldman Sachs says there is limited upside from the current levels. Given that Europe is no longer adequately represented in the MSCI World, I suggest adding a smaller position in MSCI Europe to benefit from further rises in these indexes.

* Once again, last week was a triumph of value over growth, symbolised by the rise of the Dow Jones and by Europe’s excellent performance. Amid a slump in technology, the Nasdaq ceded the crown of the best-performing markets in the US YTD (among those I follow) to the Dow Jones. The USD gained a little against the Euro and is now hovering above 1.04. 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 21.2x, 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, although I now deem it possible. That said, some notable strategists (David Kostin and Ed Yardeni) have been using a multiple north of 20+ to make their targets for 2025 and 2026; in my own base case at the turn of 1999 I also used the current multiple (24x) forecasting that it could hold – in fact, it didn’t. The story is different now, and the excesses of Akamai trading at 180x forward revenue (Jan 2000) or Cisco trading at 100x forward EPS are no longer seen, but still … Be careful when the S&P 500’s multiple begins with a 2, because every downward movement will be painful and will be 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. The Federal Reserve did oblige with another 25bp cut in December but now is operating with a much greater degree of care; it was on hold in January and sounded much more hawkish. As a consequence, the first cut is forecasted in June or July (77% and 85.6%, respectively), with 3 cuts currently seen in December 2025, with rates at 3.50-3.75% by then, against a Goldman Sachs prediction of 3 cuts. 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.

* Yields on US 10-year Treasuries have reached 4.23% and were mostly down 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 21.2x – and while it is higher than the 5-year (19.8x) 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 271.28, with a decline last week that I deem to be transitory, now a bit below consensus at 277. Meanwhile, the 2024 earnings had an upward revision to 241.97, not too far from the consensus at 242. 

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 crashed in one week from 2.3% to a new forecast of -1.5%, way below the Blue Chips consensus that is stable above 2%. On the other hand, the New York Fed’s Nowcast model, which produces a less volatile forecast, showed growth in 1Q25 at 2.94%, almost in line from 2.95% 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 4Q24 is 18.2%, compared with a forecast of 11.7% as of December 31st. Revenue growth is slower, at 5.3% in 4Q24 vs 4.6% as of December 31st. For 2024, earnings growth is forecasted at 10.4% vs 9.4% as of December 31st, with revenues coming in at 5.2% vs 5.0% 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. The highlight is Broadcom (Thursday, After Close)

Source: Earnings Whispers

Market Considerations

Source: Carson Investment Research, Ryan Detrick, ISABELNET.com

Source: Goldman Sachs FICC & Equities, ISABELNET.com

Source: Datastream, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Bloomberg Finance LP, Deutsche Bank, ISABELNET.com

Revenue growth estimates for 2024 are forecasted to grow by 5.2% (5.0% on December 31st), and earnings growth estimates for 2024 are predicted to grow by 10.4% (9.4% on December 31st), so the future looks bright. Following up with forecasts for 2025, which sound again very positive, with revenue to grow by 5.5% (5.8% on December 31st) and earnings to grow by 12.1% (14.5% on December 31st). 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 14.0% (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 Carson Investment Research, which highlights where we are in the stock market when a new President is elected. Weakness in the first quarter after the appointment is not necessarily a negative sign, as the year often ends well. The second chart from Goldman Sachs tells us that asset managers and clients of the firm think that sticky inflation could be the biggest threat to the current US Exceptionalism, more than tariffs (which may go under a different leader, while inflation is here to stay). The third chart, also from Goldman Sachs, highlights the different PEG ratios of America and Europe, opening a gap between the two blocs. Considering Europe’s feeble growth, I suspect that much of this gap depends on the difference in valuation; however, growth on a microeconomic level can be found in the old continent as well. The fourth chart, from Deutsche Bank, highlights the enormous capex that 4 of the Magnificent 7 must spend to invest in AI. This should be a reassurance that companies like Nvidia and Broadcom (which reports next Thursday) will continue to thrive as long as the current environment persists. 

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 long position in equities and a long position on US bonds. For EU Bonds, I advise going long, and I suggest putting together a portfolio that includes the yield of Italian Bonds and the safety of German Bunds, without neglecting Corporate Bonds. Pay attention to UK and US Bonds, as they offer attractive returns and are buoyed by their respective currencies, which currently enjoy a positive momentum. 

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. In the past weeks, the JPY has enjoyed a strong ride and put all other currencies – and the Nikkei 225 – under pressure.

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 23.9% in little more than a year, with a notable Sharpe Ratio of 2.2

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

Our Global Income and Growth Portfolio is up 27.8% in little more than a year, with a Sharpe Ratio of 1.5

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

My Italian Equities Portfolio is up 24.4% in the last year and has outperformed the FTSE MIB Index by 500+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 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.