World order upended; US to reach new commercial agreements with 150+ countries. Treasuries and USD crash. Fed to cut three times in 2025, starting in June; ECB will cut this week. The President’s exemption on semi, handsets and computers should bring some relief, but Secretary of Commerce Howard Lutnick is saying that this will only be temporary (!). The biggest tail risk is the US Economy falling into a recession (30% chance in 2025), resurging inflation, revenues/earnings not matching forecasts, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 14th – 18th April 2025

Economic data highlights of the week

Mon: IN – Holiday, CH PPI (3/25)

Tue: FR CPI (3/25), IN CPI (3/25), CA CPI (3/25), EU ECB President Lagarde Speaks

Wed: CN GDP (1Q25), UK CPI (3/25), EU CPI (3/25), US Retail Sales (3/25), CA BoC Interest Rate Decision

Thu: UNO – Holiday, DE PPI (3/25), US Philly Fed Manufacturing Index (4/25), US Initial Jobless Claims, EU ECB Interest Rate Decision

Fri: UK, US, CA, SW, IT, CH, IN, DE, FR, AU, SP, BR, IR, BE, SG, PT, HK, NZ, GR, NO, FI, ZA Holiday –  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:

* Dear readers, first and foremost, an apology. Not writing my weekly newsletter last Monday was not intended, but very unfortunately I became unwell with an issue that is still plaguing me. Hopefully, I can soon be back in fighting spirit, but I had a lot of time to think, and hopefully something meaningful to write this time.

The US Administration has upended the world order with its unilateral decision to renegotiate all tariffs with all partners, friends, and foes. This would slow trade dramatically, bringing in turn a severe reduction in economic activity, and possibly a recession – not just in the US, but in the world over – this is what the US President calls ‘a painful adjustment’. The US accounts only for 4% of the global population, but for 26% of the global GDP, being the largest economy, mostly thanks to the strength of its economy and that of the American consumer. This US Administration does not accept that there is an imbalance in global trade, wherein the US buys more from abroad than what it sells, and treats trade as a zero-sum game – hence the tariffs to readdress the problem. That had, in my opinion, a double effect: first, it sent equities markets around the world in a tailspin, and later (and this would be the opposite effect people might expect), a severe crash in both the USD and in long Treasuries, no longer seen as a risk-free asset, with massive relocations of capital away from the US and into other markets. That’s what most market pundits call the loss of credibility of the US, which certainly is increasing protectionism in economics and an expansionary (!) foreign policy, with the repeated mentions of Canada as the 51st US State, and of Greenland. All this was definitely hard to predict, and as it is determined entirely by policy, it is also difficult to live with. Eventually, the President had the sense of suspending his tariffs for 90 days, while his team renegotiates trade agreements with 150 countries, upon fears of a $3,000 iPhone and of massive stock ups (for cars as well), before the tariffs kick in. In that, there is an interesting good cop/bad cop dynamic in the administration, represented respectively by the Secretary of the Treasury Scott Bessent, and the Secretary of Commerce Howard Lutnick. Rumors that Scott Bessent was looking for a way out, perhaps looking at a post-Powell Fed, certainly didn’t help. We are really living by the day. Needless to say, there is ongoing pressure on the Fed to lower interest rates, and the US Central Bank will try to help even though it has to counter the new, inflationist pressures coming from the new tariffs, while data from last week, both US CPI and US PPI, was encouraging – but too early to say. In that, the S&P 500 multiple crashed to 19x (I was shocked because – given the fall – I would have hoped for a lower multiple), and I’m here trying to put together the pieces of what makes sense. A lot of dust has yet to settle, and 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 will be a short week, and we will have two interest rate decisions – a hold by the Bank of Canada, and yet another cut by the ECB, which is open for another cut later on. I wonder if this is going to remove some of the pressure against the USD, which is trading north of 1.14. Keeping equities to hold, downgrading US bonds to hold, upgrading European bonds to buy, and remaining positive on the CHF, which seems to be the only currency to hold no matter what. 

* We are in the middle of a reporting season, and pretty much everyone is worried about what will come next. The latest revision to the US 2024 GDP confirms yearly performance at 2.8%. The current P/E ratio of 19x is below the average P/E ratio of the last 5 years at 19.9x but is above the 10-year average at 18.3x. Even this latest figure, in my opinion, does not produce enough comfort to call for a bounce on valuation alone; a 16x multiple, or better still, a 14x multiple would offer better entry points. The US and Global markets reached a new low for the year on April 4th, and since then managed to come back last week after some tariffs were put on hold for 90 days and some temporary breaks for semiconductors, smartphones, and computers were introduced. That said, the relationship with China has hit rock bottom after the imposition of 100%+ tariffs in both directions; I hope both countries realise it is not in anyone’s interest to continue in a similar fashion. The S&P 500 so far has not touched the previous multiple high of 24x, and considering the attitude that the new US Administration has towards the rest of the world, I think that record will still stand the test of time for a few more years. As mentioned, 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. Now there has been a capitulation and in an optimistic way I would love to think that we have seen the lows for the year. The plot, however, is multifaceted and ready for more surprises, and therefore, notwithstanding the damage, I stick to my wait-and-see.

*  In the latest revision, the US 4Q24 GDP clocked at 2.4%, confirming expectations and pretty much in line with the average of the blue chips’ own prediction. 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. The Fed, I think, will continue to be data-dependent. While it is very unlikely that it will cut again in May (20.7%), June looks increasingly promisingly (75.9%), and July looks like a certainty (92.6%). The forecast for December currently prices in 3 cuts, with rates at 3.50-3.75%, in line with 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).

* Yields on US 10-year Treasuries have reached 4.46% and were up last week, while European government bond yields, notwithstanding the increased defense expense, were down. 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 2025 S&P 500 bottom-up earnings estimate is down to 268.49, still above the revised Goldman Sachs top-dpwn estimate of 262.

Source: FactSet

* 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 which broke the 2% level and is currently around 1.6%.  On the other hand, the New York Fed’s Nowcast model, which produces a less volatile forecast, showed growth in 1Q25 at 2.59%, down from 2.60% last week. Introducing a 2Q25 forecast of 2.62%, up from 2.44% 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 7.3%, compared with a forecast of 7.2% as of March 31st. Revenue growth is slower, at 4.3% in 1Q25 vs 4.4% as of March 31st. For 2025, earnings growth is forecasted at 10.6% vs 11.3% as of March 31st, with revenues coming in at 5.3% vs 5.4% as of March 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 (February 2026) 27.32%. 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 30% 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 1Q24 is now starting in earnest. Here’s a list of companies reporting this week. Highlights include: Goldman Sachs (Monday, Before Open); Bank of America, and Citigroup (Tuesday, Before Open); and Netflix (Thursday, After Close).

Source: Earnings Whispers

Market Considerations

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

Source: The Daily Shot, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.3% (5.4% on March 31st), and earnings growth estimates for 2025 are predicted to grow by 10.6% (11.3% on December 31st), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.5% (6.6% on March 31st) and earnings to grow by 14.2% (14.2% on March 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.  

Two highlights this week. First, we have a chart from Goldman Sachs which testifies to the events we have just seen. The correction was one of the sharpest in the last 100 years. Moreover, adding insult to injury, international investors also had to deal with the fallout from the USD, itself seen before only in the Global Financial Crisis. The path forward could be constructive even in the event of a correction, but who knows what the President and his team are up to next? The second chart, from the Daily Shot, sees the current negative ratings enduring for 7 weeks and matching a previous (negative) record set in 1990, which coincided with a market bottom. 

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. 

I now recommend a neutral position in equities and a neutral position on US bonds. For EU Bonds, I advise going long, 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 is unfortunately under severe pressure. The events in the US weakened the USD and strengthened the JPY, and let’s not forget that the land of the rising sun is a country of exporters. On top of that, there’s the hawkish BOJ – although I would think that they would prefer to hold off hiking given the current negative environment. For the time being, the cautious stance persists.

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 10.2% in little more than a year, with a Sharpe Ratio of 0.6

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

Our Global Income and Growth Portfolio is up 7.9% in little more than a year, with a Sharpe Ratio of 0.1

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

My Italian Equities Portfolio is up 14.0% in the last year and has outperformed the FTSE MIB Index by 895 bp in this timeframe, with a Sharpe Ratio of 0.7

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.