Here's the Deal - March 10, 2025

Economy: In Slowdown

Market Cycle: Under Pressure

_{Week 10 of 52 for 2025: 19.23% of the way through 2025}

Table of Contents

• Weekly Note:

• Time to listen.

• This Week in Tariff Talk

• Rough Week for the Financials Sector

• Great Q4 earnings reports are getting sold aggress …

• Creation of the Crypto Reserve

• Government to shutdown again on Friday?

• Will inflation remain in an uptrend?

• Markets:

• Significant Economic Data from the previous week:

• Economic Data to watch this week:

• Earnings this Week:

• WTF of the Week:

• Quote of the Week:

Weekly Note:

This past week was another eventful one for the economy and stock markets, driven by the ongoing back-and-forth on tariffs. Markets dislike uncertainty more than anything, and this unpredictability continues to cause disruptions.

However, if you're paying close attention, it’s becoming increasingly clear that this uncertainty might be intentional. Treasury Secretary Bessent made the media rounds this week, essentially laying out the administration’s strategy for those who were listening.

Meanwhile, financial stocks took a sharp hit at all-time highs. This could be signaling something important about where the markets and the broader economy are headed in the coming months.

Looking ahead, another busy week is on the horizon. February’s inflation reports (CPI and PPI) are due, along with yet another budget battle in Washington, which could lead to a potential government shutdown on Friday.

And while it was another tough week for markets, seasonality suggests that markets could be ready to reverse back up this week and may have already begun this past Friday.

Time to listen.

"Temporary pain."

"There’s going to be a detox period."

These were the phrases used by both President Trump and Treasury Secretary Scott Bessent this week to describe stock markets and the broader economy in the coming months.

President Trump has been clear about his desire for lower interest rates. However, as we’ve discussed many times in Here’s the Deal, cutting rates too soon would likely push inflation even higher. That’s because inflation hasn’t yet confirmed that its period of higher rates is over for this cycle, as it is still above the Fed’s target of 2% annually and now back trending upward on a monthly basis.

Timing matters, and acting too soon could create more economic instability rather than relief.

At the core of their strategy is a push for lower Treasury yields. Particularly the 10-year yield, which influences mortgage rates, and the 2-year yield, which affects the Fed’s policy rate. If those come down, it could pave the way for lower interest rates overall.

But there's a trade-off. Lower yields often come with a decline in asset prices at this late stage of the cycle. That means a market selloff, something Bessent made clear when he said Wall Street is not the administration’s primary concern right now.

While stock prices might adjust more easily, residential real estate could be a tougher challenge. If home prices do not correct as the administration hopes, the so-called "temporary pain" could stretch out longer than expected. Raising real concerns about longer-term economic stability.

From the start of this newsletter, I’ve emphasized that whether you or I like it or not, we operate within a managed economic system. Having an opinion on whether that’s good or bad doesn’t change the reality. Instead, our job is to recognize it as a piece of the bigger puzzle and, more importantly, pay attention when key decision-makers tell us their plan outright.

Right now, they’re giving us the playbook. Just as the Fed and the Trump administration signaled massive liquidity injections and stimulus checks (“Stimmys”) as a clear sign to add risk in 2020, we’re now seeing the opposite.

The pros understand this shift and know to adjust accordingly. The amateurs complain about policy decisions instead of adapting. Knowing when to pivot is what separates those who navigate the cycles successfully from those who get left behind.

This Week in Tariff Talk

Whether you’re a Trump supporter or not, it’s tough not to categorize the current tariff talk as anything other than chaotic. More importantly, no one seems to know what the real goal is as the terms seem to change with every new phone call with trade partners.

This week’s situation was summed up best by maritime trade publication, Lloyd’s List, article entitled The Long view from Long Beach:

Or the answer could be as simple as China. That’s a whole other topic of conversation.

Rough Week for the Financials Sector

In last week’s Here’s the Deal I called attention to the importance of watching the Financials sector $XLF ( ▼ 4.59% ) stating:

Welp, Financial struggled at those new highs this past week. Failing to hold their breakout, and falling as much as 7.5% from the previous weeks close before closing -5.9%. Now, we wait for confirmation. If prices continue lower, it will validate this as a failed breakout. And in markets, failed breakouts often lead to fast moves in the opposite direction.

If that plays out, it would be yet another signal that the current credit cycle is nearing its end. Watching how financials react from here will give us important clues about where the broader economy is headed in the coming months.

Great Q4 earnings reports are getting sold aggressively.

Steve Strazza of All-Star Charts made a sharp observation this week on The Morning Show on Stock Market TV pointing out many companies are seeing their stock prices drop sharply after reporting strong earnings.

A few examples include:

Microsoft $MSFT ( ▼ 1.87% )  

NVIDIA $NVDA ( ▼ 6.77% )  

CoinBase $COIN ( ▼ 6.29% )  

This is one of those things that tend to happen at the end of a credit cycle and bull market. The opposite is also true as stocks typically rally hard after terrible earnings reports at the end of a recession and the start of a new credit cycle.

I remember seeing this firsthand during the lead-up to and aftermath of the Great Financial Crisis (‘08/’09). At the time, it was incredibly frustrating to experience. But in hindsight, it’s a pattern worth recognizing because once you understand it, you can use it to your advantage.

Creation of the Crypto Reserve

It’s official, the United States now has a Crypto Reserve.

The Strategic Bitcoin Reserve and the U.S. Digital Asset Stockpile are being built entirely from cryptocurrencies seized through federal criminal and civil forfeiture cases. This approach ensures that no taxpayer funds are used to establish or grow the reserve.

Bitcoin $BTC.X ( ▼ 4.83% ) continues to struggle after pulling back again from the $100K level.

🐂 above the green line.

🐻 below the red line.

Government to shutdown again on Friday?

The Wall Street Journal had a solid breakdown of the situation with the new government funding plan introduced by Republicans, backed by Trump, and the possible looming showdown with Democrats over the bill.

For now, my bet is that it passes along party lines. Republican budget hawks in Congress are likely to give Trump room to push his agenda early in his second term. If they don’t, a government shutdown on Friday becomes highly likely. Especially since the Democrats who broke ranks to fund the government late last year are unlikely to do so again, given the Trump administration’s aggressive first month and a half.

In the end, though, it probably won’t matter. The government will get funded eventually. The real question is how much political maneuvering happens before we get there.

Will inflation remain in an uptrend?

We'll find out whether the current monthly uptrend in inflation keeps climbing or takes a pause, as both CPI and PPI reports for February arrive this week.

It will be a relief once we can finally put the inflation narrative to bed for good for this cycle, but that time is not yet here.

Markets:

Monday’s market action was much weaker than I expected to start the week.

The flight to safety continued, with defensive sectors extending their outperformance. Giving more evidence of an economy running out of steam.

That leadership from defensive plays is likely to be tested in the coming weeks. How it holds up (or doesn’t) will provide valuable insight into where the market is headed next. Keep a close watch as this could be a key signal.

I did pick up some DOW with week. Although I certainly wouldn’t recommend it here, as it continues to fall and put in new lows. Although it’s a bet on the continued flight to safety as it pays a good dividend.

If it eventually shapes up into a good opportunity for less experienced traders and investors, I’ll give a heads-up here. But for now, it’s worth watching. Not just as a potential trade but as a signal that could give us more insight into where the markets and economy are headed in the months ahead.

$DOW ( ▼ 8.71% ) Dow Inc.

On the bright side, markets did get a pretty good rally on Friday and look as though they may have bottomed for now.

$SPY ( ▼ 4.31% ) S&P 500

Broadening Formation it is for SPY. Crucial that it gets back above $590 - $595ish.

$DIA ( ▼ 3.7% ) Dow Jones Industrial Average 👀 

Not exactly the greatest look in the world.

$QQQ ( ▼ 5.03% ) Nasdaq

QQQ’s need to hold the line here. 😟 

$IWM ( ▼ 6.22% ) Russell 2000 (Small Caps)

Out: Small Caps

Back in: Small C(r)aps

We’re now entering a seasonal period where stocks should start reversing course and moving higher. But the key question is: Will they?

How much they rally and how fast will provide valuable clues about the market’s underlying strength and what’s ahead for the economy in the coming months.

There’s a lot happening right now, and things are getting more interesting by the day.

Significant Economic Data from the previous week:

Economic Data to watch this week:

Earnings this Week:

WTF of the Week:

Quote of the Week:

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