The Via Dollarosa illustrates the plight of the USD; loss of trust in the new US Administration drives flows out of the country and into Europe and Japan. Pressure on Fed Chairman Powell to cut rates jolts markets; calm is restored when it appears his position should be safe until its natural end next year. New economic forecasts after tariffs are coming to light, but they are becoming highly sensitive to news and policy changes in the US. 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 21st – 25th April 2025

Economic data highlights of the week

Mon: UK, SW, IT, CH, DE, FR, AU, SP, BR, IR, BE, PT, HK, NZ, GR, NO, FI, ZA – Holiday, CN PBoC Loan Prime Rate (4/25)

Tue: JP BoJ Core CPI, EU ECB President Lagarde Speaks

Wed: JP Services PMI (4/25), FR Manufacturing PMI (4/25), FR Services PMI (4/25), DE Manufacturing PMI (4/25), DE Services PMI (4/25), EU Manufacturing PMI (4/25), EU Services PMI (4/25), UK Manufacturing PMI (4/25), UK Services PMI (4/25), EU Trade Balance (2/25), US Manufacturing PMI (4/25), US Services PMI (4/25), UK BoE Governor Bailey Speaks

Thu: DE Ifo Business Climate Index (4/25), US Initial Jobless Claims, US Durable Goods Orders (3/25), US Fed’s Balance Sheet

Fri: AU, NZ – Holiday, JP CPI (4/25), UK Retail Sales (3/25)

Performance Review

Source: Google

InflectionPoint reports:

* Out of America and Via Dollarosa. This is enough to explain what happened last week – a violent rotation out of the US and into other markets, and a crash of the USD. It looks like the world has little patience with the policy gyrations of the new US Administration, and is seeking greener pastures elsewhere. This breach of trust could have serious consequences in the long term, even though Barclays reaffirmed its faith in the USD as the primary reserve currency this morning. But the greenback is no longer what it was and is presently a shadow of its former self, and investors, hit by a double whammy of a loss in the stock market and a loss in the currency, will certainly remember. Raising the weight of an investment on the SMI in CHF seems to be a sensible solution, but certainly, Europe and Japan will gain from this massive change in country allocation. At the same time, the FMI and the World Bank are coming out this week with new forecasts after the tariffs upheaval, and it will take time to fully understand the impact that this dramatic US policy change will have on the rest of the world. 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. Add in the mix the position of Fed Chairman Jay Powell, which the President wanted to fire, and then denied it was looking to. Powell’s term will end in 2026 anyway, and a new Chairman will be appointed, but this threatens to violate the independence of the US Central Bank. Obviously, the markets were having none of this and sent all indexes to a nosedive on Monday, only to recover on Tuesday when the President backtracked. 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. 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. 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. After the shock caused by the US tariffs renegotiation, investors are looking for some stability, which at the moment is nowhere to be found. I suspect that this might come when the first trade deals are being announced (such as with the UK, Australia, or Japan), but a lot will still have to be determined, and definitely, the 90-day respite offered by the President isn’t enough. 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 optimistically, 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 (4.8%), June looks increasingly promising (61.2%), and July looks like a certainty (90.9%). The forecast for December currently prices in 3 cuts, with rates at 3.50-3.75%, in line with Goldman Sachs, while leaving the door open (not likely, but possible) for a fourth cut. 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 4.35% and were up last week, while European government bond yields 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 267.38, still above the revised Goldman Sachs top-down estimate of 262.

Source: FactSet

* The Atlanta Fed GDPNow model is very much still in negative territory with a new forecast of -2.2%, way below the Blue Chips consensus, which broke the 1% level and is currently around 0.6%.  On the other hand, the New York Fed’s Nowcast model, which produces a less volatile forecast, showed growth in 1Q25 at 2.58%, down from 2.59% last week. Introducing a 2Q25 forecast of 2.61%, down from 2.62% 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 7.2%, 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 10.0% vs 11.4% as of March 31st, with revenues coming in at 5.1% 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 continuing in earnest. Here’s a list of companies reporting this week. 

Source: Earnings Whispers

Market Considerations

Source: Topdown Charts, LSEG, ISABELNET.com

Source: J.P. Morgan, ISABELNET.com

Source: Bloomberg, ISABELNET.com

Source: Goldman Sachs Global Investment Research, University of Michigan, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.1% (5.4% on March 31st), and earnings growth estimates for 2025 are predicted to grow by 10.0% (11.3% on December 31st), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.4% (6.6% on March 31st) and earnings to grow by 14.1% (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.  

Four highlights this week. First, we have a chart from Topdown Charts, which uses a comprehensive method of evaluating the market, not just using multiples. The current valuation indicator has turned neutral, which means that there could be a bounce in the short term.  The second chart from J.P. Morgan focuses on earnings and on their resilience. While economic forecasts have varied significantly, earnings have not declined by much, which is a positive sign. The third chart from Bloomberg illustrates the plight of the USD, now on key support levels since 2023 – my take is that should the current volatility continue, we could see 1.20 against the Euro. The fourth chart from Goldman Sachs tells us how precarious the job market in the US is, with expectations that there will be higher unemployment next year. On one hand, this should prompt the Fed to ease further; on the other, it must contend with inflation, also being caused by the new tariffs. 

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 was wrong 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, although I note a bounce could be in the cards given the capital flows out of the US.

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 10.9% 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 6.4% 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 18.8% in the last year and has outperformed the FTSE MIB Index by 930 bp in this timeframe, with a Sharpe Ratio of 0.9

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.