Recession fears continue to drive the correction; Magnificent 7 under pressure. Downgrading equities to hold; still long on US bonds, while waiting for better opportunities on European bonds given the massive increase in yields due to heightened defense spending. Crucial this week are US CPI on Wednesday and US PPI on Thursday. 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 10th – 14th March 2025

Economic data highlights of the week

Sun: CN CPI (2/25), CN PPI (2/25)

Mon: DE Indistrial Production (1/25), JP GDP (4Q24)

Tue: US JOLTs Job Openings (1/25), JP PPI (2/25)

Wed: US CPI (2/25), CA BoC Interest Rate Decision

Thu: CH PPI (2/25), US PPI (2/25), US Initial Jobless Claims, US Fed Balance Sheet 

Fri: IN – Holiday, UK GDP (1/25), DE CPI (2/25), FR CPI (2/25), SP CPI (2/25)

Performance Review

Source: Google

InflectionPoint reports:

* Ouch. The ides of March are nearing again, and will it bring bad omens to an already tormented market? Last week was no exception – US equities got knocked out, the VIX spiked up, and European bonds got a shock that has rarely been seen in recent history. There are very powerful headwinds battering the developed economies and structural changes that may be seen once in a century, often at the end of a major war. Even major historic alliances such as NATO are put to the test. President Trump, at least in his words, continues his policies of tariffs that threaten not only to slow growth globally but to bring down the entire world’s economy, killing trade on the way to its goal. The US has left Ukraine at Russia’s mercy, and there is a prospect of a new Yalta agreement some 80 years after the original one. A brave new world, indeed. Meanwhile, Europe is set to dramatically increase defense spending not to rely on the US anymore for protection, and Germany, for the first time after WWII, will eliminate the constitutional brake to more indebtedness and start spending, sending yields much higher and pressing spreads within the Euro area. 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, and that not even Friday’s constructive labour report has managed to turn around. The mood remains atrocious, and the CNN Fear and Greed Index is flashing Extreme 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 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 Tuesday, courtesy of the JOLTs Job Openings, on Wednesday, with the much-awaited US CPI, and on Thursday, with the US PPI. At the same time, Fed Chairman Jay Powell thinks that the US Economy is performing just fine and that the Committee is in no hurry to lower rates; the market disagrees and sees the US Central Bank moving more swiftly than before, particularly if the negative news will continue to persist. The biggest worries for (US) markets are recession, tariffs, earnings, valuations, and a further escalation in the geopolitical scenario. Downgrading 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. 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. 

* Last week, there was blood on the street almost daily. In this condition, it’s pointless to say that value held better than growth, even though, on a relative basis, we are approaching an area where there could be a technical rebound. Not even Broadcom’s good earnings managed to lift the spirits and the Nasdaq, which was hammered for a second straight week. Contrary to Trump’s policies (tariffs) and to everyone’s expectations, the USD crashed last week against the Euro and is now trading above 1.08. 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 20.7x, 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 19.8x, 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. The Federal Reserve obliged with another 25bp cut in December but is now operating with a much greater degree of care; it was on hold in January and sounded much more hawkish. While it is very unlikely that it will cut again in March (3%), May is warming up to becoming 50/50 (40.2%), while June looks like a solid place to start (84.5%). The forecast for December currently prices in 3 cuts, with the pendulum swinging barely in favour of a fourth, and rates at 3.50-3.75%, in line with the Goldman Sachs’s view. 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 slumping.

* Yields on US 10-year Treasuries have reached 4.24% and were mostly in line last week, while European government bond yields shot up in response to a new European plan for defense to the tune of EUR 1000Bn. 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 20.7x – 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 271.20, 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 -2.4%, 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 2.67%, down from 2.94% last week. Introducing a 2Q25 forecast of 2.58%. 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 18.3%, 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 10.7% vs 9.6% 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 Oracle (Monday, After Close), as it can give us an early indication of how US companies performed in 1Q25

Source: Earnings Whispers

Market Considerations

Source: Compustat, FactSet, IBES, Goldman Sachs Global Investment Research, ISABELNET.com

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

Source: Carson Investment Research, YCharts, ISABELNET.com

Source: Carson Investment Research, FactSet, 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 5.4% (5.6% on December 31st) and earnings to grow by 11.6% (14.1% 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 14.1% (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 highlighting that, even after the current decline, valuations remain high. I mentioned before that we might find some support when the current multiple reaches the 5-year average – well, that’s a drop of 243 more points in the S&P 500. Simply put, we cannot count on valuations to provide a floor for the market, even though I believe the current issue is more related to adverse sentiment than valuation itself.  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 represents a small increase in their recession forecast for 2025 to 20% – roughly in line with historical averages. The stock market discounts everything, so it is preparing in advance for what might come later in the year by selling stocks. The third chart, from Carson Investment Research, tells that timing the market is extremely difficult, especially in a period of high volatility – and missing the 10 best days in the market can prove to be costly. It probably pays to buckle up and stay invested, for you never know when the bounce could materialise. Finally, the fourth chart, also from Carson Investment Research, points to a positive seasonality in the back half of March, so hopefully, the current downturn will not last long. Comments from Larry Ellison, Chairman of Oracle, that ‘customer demand is at record levels’ are definitely encouraging, but please note the ‘Buffett’s trap’ below. That said, it’s essential for a rebound that fundamentals continue to be solid.  

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. 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 17.5% in little more than a year, with a Sharpe Ratio of 1.6

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

Our Global Income and Growth Portfolio is up 15.6% in little more than a year, with a Sharpe Ratio of 0.9

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

My Italian Equities Portfolio is up 23.2% in the last year and has outperformed the FTSE MIB Index by 650+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.