Here's the Deal - March 2, 2025

Economy: In Slowdown

Market Cycle: Bullish Under Pressure

_{Week 9 of 52 for 2025: 17.31% of the way through 2025}

Table of Contents

• Weekly Note:

• Bond prices appear to have bottomed, and yields se …

• This Week in Tariff Talk

• Profit Margins remain elevated.

• Crypto ready to move higher again??

• Current GDP Situation

• PCE and inflation

• 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:

Every week, it’s becoming more obvious that the current credit cycle is running on borrowed time.

This is reflected not just in longer-term economic data but also in industry rotation within stock markets. Money continues to flow out of expansionary industries like consumer discretionary, homebuilders, materials (used for building), and technology and into defensive sectors like consumer staples, healthcare, utilities, gold, and silver.

At the same time, Financials hit another new high this week. Significant as the sector tends to perform best in a peaking economy. The key thing to watch now is whether these new highs hold or if this turns into a failed breakout.

Meanwhile, bond prices continued outperforming the indices this week. A shift that typically signals a more cautious market environment.

The VIX continues to move higher, further reinforcing the expectation that 2025 will be a year of increasingly heightened volatility.

For now, I still expect the current path outlined in the 2025 Forecast to continue playing out. So far, it’s unfolding about as perfectly as one could realistically expect.

Bond prices appear to have bottomed, and yields seem to have topped.

Bonds are becoming increasingly interesting, as last week's price action suggests that bond prices may have officially bottomed for this cycle. Which also means bond yields may have peaked.

That said, I’m not ready to call this 100% just yet. Before confirming, I want to see how US10YR yields react to the 4.13% - 3.85% range.

Eventually, I’d expect to see one final surge in bond yields before the cycle fully turns. This typically happens when both bond and stock prices fall together, a classic hallmark of true market crashes at the end of credit cycles, as investors panic and rush into cash.

This Week in Tariff Talk

Several major tariff developments took place this past week:

• President Trump confirmed that 25% tariffs on goods from Canada and Mexico will take effect on March 4, 2025. This follows a month-long delay meant to allow negotiations on border control measures.

• An additional 10% tariff on Chinese imports was announced, also set for March 4. This doubles the current 10% tariff, effectively raising the total to 20% on Chinese goods.

• Trump cited continued high levels of drug trafficking, particularly fentanyl, from these countries as the main reason for the new tariffs.

• Canada and Mexico are expected to impose retaliatory tariffs on U.S. goods, while China, which has already responded with tariffs, is likely to escalate its countermeasures.

• Both Canada and Mexico have intensified efforts to avoid these tariffs by demonstrating progress in border security and fentanyl trafficking control.

• Trump also hinted at a 25% tariff on imports from the European Union, particularly targeting the automotive sector.

These developments have added uncertainty to international trade relations and have already impacted financial markets, as a quick negative reaction in stock markets has accompanied each announcement.

Profit Margins remain elevated.

Profit Margins remain elevated at 12.6% so far for S&P 500 companies with 77% having already reported earnings.

This is telling me that a recession absolutely did not begin in Q4 2024.

Crypto ready to move higher again??

Bitcoin has hit $80K, and the path forward suggests a potential top around $145K this year. While $180K has been the target, it is now lowered due to the inability to hold $100K the last several weeks.

The next key level to watch is $94K - $97K in the near term.

Should Bitcoin break back above $102,685, the probability of hitting $145K increases significantly.

***This was written before President Trump announced the Strategic Crypto Reserve which sent prices of BTC, ETH, SOL, ADA, and XRP flying higher. The forecast above remains the same. I’m now looking for this current move to get sold early in the week, and will then look for a higher low around $84K-85K to add to positions for a possible explosive move to $145K.

Current GDP Situation

This past week the second estimate for Q4 2024 GDP came in as expected at 2.3% quarter-over-quarter growth.

However, the real headline came from GDPNow, which currently projects negative growth (-1.5%) for Q1 2025.

It wouldn’t be unusual to see a single negative quarter precede another positive one before the real downturn hits. That pattern aligns with the economic cycle and the 2025 Forecast.

That said, always take the GDPNow estimate with a huge grain of salt. It’s a prediction, not an official reading, and it’s far less reliable than the initial GDP reports that come out after a quarter ends. Think of it as a low-probability early warning signal, something to monitor but not panic over just yet.

For those of us from the Midwest, it’s like a tornado watch, as opposed to a tornado warning. Conditions suggest a storm could develop, but nothing has touched down yet.

PCE and inflation

No surprises out of PCE this week, as it came in at 2.3% as expected. Here’s a current look at the current inflation trends using all three major metrics:

This is a critical moment in the battle against inflation. Over the next few months, we’ll get a clearer picture of whether the recent uptick in inflation is just a temporary bounce or the start of a longer-term trend pushing the rate of inflation back up to 4-6%.

Markets:

Indices seem to be settled into their current ranges. Expect to see the price action tighten in SPY and DIA. My expectation is that they break out eventually this Spring, and move to the higher targets.

As for the QQQ’s, it looks as if it has developed into a megaphone pattern. I also expect this to resolve higher along with SPY and DIA this Spring.

As for IWM, there's a possibility it could return to its all-time high (ATH) of $244.98 or somewhere close to it.

For this to happen, it will likely require both the dollar and yield curves to continue weakening.

For March, expect a strong start, followed by a period of consolidation until around mid-month (or slightly earlier).

After that, look for a significant move higher, likely pushing stock prices up for what appears to be the final leg higher in the current credit cycle.

If anything changes, you’ll read about it here.

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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