Markets paused to take a breath this week following a six-week ~22% surge. The S&P 500 surrendered a routine ~2.80% – after touching a 12-week high of 5,968. With the market trading at 22x fwd earnings (a premium in any environment) – investors are arguably more mindful of (a) ongoing tariff risks- with new threats from Trump on Europe and Apple; and (b) the thread of rising bond yields – and any potentially widening of the deficit.
S&P500
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What Do Q1 Earnings Tell Us?
We’re about half way through Q1 2025 earnings. So far they’re showing double-digit YoY growth. However what companies are struggling with is guidance. They have very limited visibility through the “tariff windshield”. And whilst stocks are reacting well to past earnings and optimism Trump will back down on his draconian tariffs – it’s difficult to gauge both how much damage has been done? For now, markets remain optimistic however I would treat this rally with caution.
Relief Rally Likely to be Temporary
Despite the welcomed relief rally – stocks are not out of the woods. The uncertainty introduced from Trump has inflicted a lot of damage. Not only on the market and its earnings – but on investor, consumer and business confidence. However, the full extent of the damage will only be felt in the months (years) ahead. For example, Bankim Chadha of Deutsche Bank has reduced his target for the S&P 500 for the year, citing doubts over whether tariff policies will be abandoned before they have already driven the economy into a recession. This echoes what I said recently “we could already be in recession”