Solid earnings and calmer waters in the rough seas of trade propel a massive rebound for Equities, with the Nasdaq returning once again to lead the pack. The 1Q25 earnings season continues, but watch results this week as they are very important, with Microsoft, Meta, Apple, and Amazon all reporting. Important datapoints on the economic side as well – not just the April labour report – should tell us how it is coping with the threats of tariffs and disruptions. The BoJ will most likely hold on Thursday, but watch out for any indication it wants to hike again.  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 28th April – 2nd May 2025

Economic data highlights of the week

Mon: ZA – Holiday, FR Jobseekers Total (3/25)

Tue: JP – Holiday, DE GfK Consumer Climate (5/25), SP CPI (4/25), SP GDP (1Q25), US JOLTs Job Openings (3/25), US Consumer Confidence (4/25)

Wed: AU CPI (1Q25), CN Manufacturing PMI (4/25), FR GDP (1Q25), DE Retail Sales (3/25), FR CPI (4/25), DE Unemployment Rate (4/25), DE GDP (1Q25), EU GDP (1Q25), DE CPI (4/25), US ADP Nonfarm Employment Change (4/25), US GDP (1Q25), CA GDP (2/25), US Core PCE Price Index (3/25)

Thu: SW, IT, SK, CH, IN, DE, FR, SP, BR, IR, BE, SG, CH, PT, HK, GR, NO, FI, ZA – Holiday, JP BoJ Interest Rate Decision, UK Manufacturing PMI (4/25), US Initial Jobless Claims, US ISM Manufacturing PMI (4/25), US Fed’s Balance Sheet

Fri: CN – Holiday, EU Manufacturing PMI (4/25), EU CPI (4/25), EU Unemployment Rate (3/25), US Nonfarm Payrolls (4/25), US Unemployment Rate (4/25), US Average Hourly Earnings (4/25)

Performance Review

Source: Google

InflectionPoint reports:

* Alive and kicking—this was the main message from the equity markets last week. Driven by superior earnings once again and a constructive report from Alphabet (Google’s parent company), all American indexes managed to report solid gains and reduce losses on a YTD basis. Unfortunately, the USD’s plight continues, leaving foreign investors still deep under water because of losses on the markets and losses on the currency. The upcoming week will be very important to determine if, trade issues aside, the bounce can continue. There will be full sets of economic data, starting from Tuesday, with JOLTs Job Openings and Consumer Confidence, with ADP Payrolls and US GDP on Wednesday, followed by the US ISM Manufacturing PMI on Thursday, and last but not least by the April labour report on Friday. At the same time, earnings reports will continue, and while until now they have proved to be very resilient, the difficult part (with the jolt on trade) starts now. Also not to be forgotten is the Interest Rate Decision in Japan on Thursday, where the BOJ is supposed to stay put, but where any perceived changes in monetary policy (=future hikes) will have to be looked at with great attention. Raising the weight of an investment in the SMI in CHF seems to be a sensible solution, but Europe and Japan will certainly gain from this massive change in country allocation. Speaking about earnings, the current forecast is that they will rise by 10.1%, well over the March estimate of 7.2% – and with just 36% of S&P 500 companies having reported actual results, earnings’ growth is likely to increase further. While I am becoming increasingly optimistic that we might just be able to get out of this hole in which the US Administration has sunk us, we need to operate with caution and pay attention to the news. The latest messages coming from Rome, where all the world leaders are convened, are that it is unlikely that the 90-day tariff break will be extended, and that Presidents Trump and Zelensky spoke again. Regarding the spat with China, everyone expects the other to make the first move, which I think is very tough to ask of the Chinese. With even Walmart pressuring the administration, saying that trade with China is essential, I believe that somehow an agreement of some sort will be found. At the same time, Apple plans to shift to India the production of all US-bound iPhones from as soon as next year. 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 its value no matter what (the SNB has one of the lowest interest rates among major countries at just 0.25%). 

* The reporting season is continuing, and while it is to be watched with great importance, everyone is worried about what will happen next when the trade restrictions kick in. We will get an update on US 1Q25 GDP on Wednesday, and that is very important because of the vastly different forecasts by the Atlanta Fed and the New York Fed. The current P/E ratio of 19.8x is just 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, first and foremost provided by earnings and guidance.  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 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 (8.9%), June looks increasingly promising (62.6%), and July looks like a certainty (92.8%). The market reacted positively to comments from Fed officials that a cut in rates was forthcoming. 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 for a fourth cut, reducing rates to 3.25-3.50%. 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 4.23% and were down last week, in line with most 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 2025 S&P 500 bottom-up earnings estimate is down to 265.87, 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 -2.5%, way below the Blue Chips consensus, which broke the 1% level and is currently around 0.5%.  On the other hand, the New York Fed’s Nowcast model, which produces a less volatile forecast, showed growth in 1Q25 at 2.63%, up from 2.58% last week. Introducing a 2Q25 forecast of 2.72%, up from 2.61% 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 now 10.1%, compared with a forecast of 7.2% as of March 31st. Revenue growth is slower, at 4.6% in 1Q25 vs 4.4% as of March 31st. For 2025, earnings growth is forecasted at 9.7% vs 11.3% as of March 31st, with revenues coming in at 5.0% 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. Highlights include: Visa (Tuesday, After Close), Microsoft and Meta (Wednesday, After Close), MasterCard (Thursday, Before Open), Amazon and Apple (Thursday, After Close). 

Source: Earnings Whispers

Market Considerations

Source: Bloomberg Finance L.P., J.P. Morgan Flows & Liquidity, ISABELNET.com

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

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

Source: yahoo!finance, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.0% (5.4% on March 31st), and earnings growth estimates for 2025 are predicted to grow by 9.7% (11.3% on December 31st), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.3% (6.5% on March 31st) and earnings to grow by 13,8% (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 J.P. Morgan, which shows the different recession rates as extrapolated from the market. Taking into account the S&P 500, it shows a 49% chance of a recession, higher than the one currently forecasted by economists (30-35%). The second chart from Goldman Sachs centers on valuation. While the S&P 500 is expensive itself, some notable sectors enjoying a revival recently (Consumer Staples) are also expensive. Once again, stick with sectors with superior earnings power because that will, over time, help to lower and digest the multiple. The third chart from Deutsche Bank points us to corporate buybacks – executives are enjoying solid earnings, and they are repurchasing shares at a very solid pace, creating further value for shareholders. And the fourth chart from yahoo!finance shows Wall Street’s turnaround – no longer forecasts of the S&P 500 over 7,000 are being made, the current ones are looking much more realistic, and if all goes well, the market can even surprise on the upside, topping some by the end of the year. 

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. Let’s see if 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.

Finally, Tom thinks that the current USD weakness can continue if the current maneuvering on trade continues, but he’s positive should there be a breakthrough. Watch this space. At the moment, it looks like the 1.15 EUR bottom against the EUR will hold. 

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 12.4% in about 1 1/2 years, with a Sharpe Ratio of 0.8

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

Our Global Income and Growth Portfolio is up 9.7% in about 1 1/2 years, with a Sharpe Ratio of 0.3

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

My Italian Equities Portfolio is up 23.1% in the last year and has outperformed the FTSE MIB Index by 830 bp in this timeframe, with a Sharpe Ratio of 1.1

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.