Here's the Deal - May 5, 2025

Economy: In early Recessionary Phase (Not necessarily a recession, yet.)

Market Cycle: In Correction. Confirmed Bear Market, but showing signs of life.

_{Week 18 of 52 for 2025: 34.62% of the way through 2025}

GDP growth negative in Q1.

This week, we saw the GDP growth rate turn negative (-0.3%) for the first time since the first quarter of 2022. To be clear, this is just the initial estimate as there are two more reports to come. And historically, the first quarter tends to be the weakest period for growth since the Great Financial Crisis, so some weakness here isn’t unusual.

But even so, a negative number is a warning sign worth paying attention to in the months ahead.

Personally, I wouldn’t be surprised if the economy bounces back with positive growth in the second quarter. However, the next time we see a negative GDP growth reading, I believe it could mark the official starting point of the next recession.

Labor market showing signs of deteriorating under the surface.

In April, the U.S. economy kept adding jobs at a steady pace, though job growth slowed a bit. Likely influenced by shifting tariff announcements and market volatility.

But under the surface, we’re seeing some cracks start to form. The JOLTS report, which measures job openings, is getting worse. The ADP jobs report also came in about half of what was expected this week.

On top of that, both initial and continuing jobless claims are rising. Meaning more people are beginning to file for and remain on unemployment.

We’re also seeing construction spending continue to weaken. If this trend continues, watch for layoffs in the construction sector to pick up. That would be an important signal that a recession could be right around the corner.

(Charts for those mentioned in this section and a WSJ article will be posted in the replies due to size restrictions for this post.)

GOP begins embracing communism after turning their backs on free trade.

In a bizarre turn of events: Trump, his team, and many of his supporters are beginning to act more like communists than capitalists.

This week, a Senate effort led by Senator Rand Paul to block Trump’s anti-free market tariffs failed, with most Republicans staying loyal to the White House.

Meanwhile, Fox Business’s Charles Payne, who ironically hosts a show entitled Making Money with Charles Payne, posted this garbage in response to a report that Amazon would provide transparency by posting tariff-related fees/taxes on each impacted item.

As if a statement straight out of the Politburo wasn’t enough, White House Press Secretary, Karoline Leavitt, went even further, calling Amazon’s move “hostile and political.”

Good to know that transparency is now a “hostile and political” act. At least according to the faux conservative party of Trump.

It’s a perfect example of the Voltaire quote: 'To learn who rules over you, simply find out who you are not allowed to criticize.' Weak leaders fear criticism, and that fear makes them dangerous.

The Wall Street Journal also wrote an article regarding the sudden about-face for those who once claimed to be capitalists.

If you’re paying attention, it’s not hard to see why. Many of the loudest supporters of tariffs are doughboy spreadsheet warriors who’ve never done manual labor in their life. Yet they love the idea of forcing Americans back into factories to fulfill their fantasies of winning influence with the wealthy and powerful. Some politicians and wealthy insiders, who stand to profit most from this shift, love it too. And sadly, many blue-collar workers who don’t fully understand how the economy works are buying into the promise.

But the loudest warnings? They’re coming from people who’ve actually began their careers doing manual labor, went on to build businesses, and now understand the bigger economic picture. They know how devastating these policies will be for the U.S. economy.

Here’s the question we all need to ask: Who really benefits when these dramatic economic changes are forced on the country and the severe negative reactions caused by the extreme pivots end up hurting everyday Americans the most in the following months and years?

Do you really think the owners of these factories of the future will willingly take lower profits so workers in the US can earn higher wages to match America’s higher cost of living? If you believe that, I challenge you to show me proof they’ve done it before or that it is consistent with their character.

History suggests the opposite. Remember, Trump stiffed tradespeople at least four times on his over-budget mega-projects in the past.

It’s no wonder even the longshoremen’s union, who backed Trump in 2024, are also now turning their backs on him and warning that his tariff policies will hurt blue-collar workers.

Another example of how Trump’s horrendous economic policies and chaotic implementation are costing him supporters that are now beginning to feel the impacts we will all eventually experience. That is unless brighter minds and cooler heads prevail.

If you read one thing this week, make it this.

Great article about the devastating effects of tariffs already being experienced by small businesses, which are the backbone of the US economy, from someone on the front lines. While one could erroneously claim TDS, Ryan shows no history of such. He just understands logistics. This isn’t political, it’s just common sense to those who understand markets and the supply chain:

What happens to American companies if the tariffs continue? This CEO says there will be “an extinction-level, asteroid-wiping-out-the-dinosaurs kind of event.”

Likewise, the Executive Director of the Port of Los Angeles, Gene Seroka, went on Bloomberg TV on Friday to speak about the dire situation currently facing the US due to tariffs and their chaotic roll out. Stating that the drop in incoming cargo has now begun and a 35% drop is expected this week. Should this continue, retailers have ~5-7 weeks of inventory available, and after that spot shortages will begin to occur. Which will become a much larger issue during back-to-school and then holiday shopping seasons, as pointed out last week. Should the administration wisely decide to pivot, it will take more than a month to reset the supply chain back to “normal.”

Meanwhile, big business is already cutting back due to the assault on free and open markets:

The unpredictability of President Trump’s stop-start trade offensive is paralyzing companies on just about every front except one—taking an ax to costs

Next up for big business should this continue… Mass layoffs.

Fed Week: Expect rates to remain unchanged.

Last week, U.S. Treasury Secretary Scott Bessent publicly called for the Federal Reserve to cut interest rates at their meeting this Wednesday, May 7th. But here’s the thing: the bond market and economic data are saying, “Not so fast, my friend.”

The more likely outcome? Expect the Fed to hold rates steady this week. They’ll probably wait for more data on how tariffs are affecting prices over the next six weeks before making any moves at their next meeting. And honestly, that’s the smart and responsible choice right now.

Keeping rates at 4.25% to 4.5% for six more weeks wouldn’t negatively affect the economy. But cutting rates too soon, only to be forced to reverse course and hike them again if inflation reignites due to tariffs, now that would cause serious damage.

The truth is, despite their earlier mistake of calling inflation 'transitory,' the Fed has done an impressive job steering the economy since. Of course, we have to remember: back then they were reacting to the economic whiplash caused by an unprecedented global shutdown. They underestimated how much disruption that would cause to supply chains worldwide.

And ironically, tariffs today are creating the very same supply chain problems that caused inflation to get so out of control a few years ago…

Setting up Stagflation??

Which leads to an important question: Are these tariffs setting the U.S. up for Stagflation, a situation where inflation rises, but wages do not?

The last time America faced stagflation was from the late 1960s through the early 1980s. And of course it’s the middle-class and poor who get hurt the worst, as usual.

Now, I’m not saying stagflation is guaranteed to happen again, or that it would last as long as it did the last time. But what I am saying is this: the risk of stagflation has grown significantly because of these tariff policies.

If stagflation does happen, the blame would fall squarely on President Trump. Inflation had already started trending down, and without the added pressure from tariffs, it would continue to fall at this stage of the cycle.

While PCE joined PPI and CPI in continuing to fall this week, it was still higher than expected. And it’s important to keep in mind that none of the inflation reports have factored in tariffs as the tariff rates were unveiled on April 2nd and these inflation reports represent March.

The truth is, without Trump’s tariff chaos disrupting prices, the Federal Reserve probably could have cut interest rates this week. Instead, we’re facing a major, unnecessary setback. A major self-inflicted wound that could have been easily avoided.

This week in tariffs.

America’s largest retailers are telling us that they are doing everything they can to avoid raising prices for consumers (article will be posted in the replies). But the reality is, they’re fighting an uphill battle as long as tariffs keep driving up their costs. They can only hold the line for so long.

At the same time, the Trump Administration is claiming that tariffs will help the apparel industry in the U.S.

But here’s the problem: the American Apparel & Footwear Association, the actual trade group representing U.S. apparel companies, says that’s simply not true as they asked the Senate to vote for Senator Paul’s effort to block Trump’s tariffs this week.

Meanwhile, Adidas has already announced it will raise prices on all its U.S. products because of the added costs from the new tariffs. And they’re likely not the last brand to do so.

On top of that, earlier this week, we were told by both White House Press Secretary, Karoline Leavitt and National Economic Council Director, Kevin Hassett to expect trade deal announcements this week.

So the question is: Where are the trade deals we were promised? Because zero were announced.

Markets:

President Trump continues to show the world how little he understands about stock markets, as this week’s hilarity came in the form of Trump blaming Biden for the market’s tariff driven correction on Wednesday morning as markets were gapping down before the bell due to the negative GDP growth rate.

Which made it even more comical that markets reversed course that day and are now up ~4% (SPY) from when he made the proclamation that this is Biden’s market.

However, the funniest part was resurgence of an old post he sent in January 2024 claiming that this is in fact “the Trump stock market” because it was hitting new highs at the time.

The S&P 500 is up ~ 15% since Trump tried taking credit for it three years after leaving office initially.

The whole charade continues to get sadder and more pathetic with every passing week.

Anyhoo…

Markets have now erased all the post-April 2 tariff announcement losses and are now on a 9 day win streak. They have recovered well since Trump acquiesced, backed off on the highest of tariff rates, and softened his rhetoric. The last 10-day win streak came in Sept 1995 and lasted for 12 days.

The concern is that this rally off the lows has been led by retail (individuals) instead of institutional (big money funds) investors (Article will be posted in replies). While it may sound great, the truth is that institutional investors control markets as they make up 70-80% of the market.

One driving force which may help markets back to highs is the fact that institutional investors were caught offsides and may be forced to not only cover short positions, but also buy more stocks to save face with their clients.

Time will tell.

But as for now, markets appear to have stuck a dagger into the heart of the correction and mini-bear market. Although this week will be yet another test.

$SPY ( ▲ 0.5% ) S&P 500:

Thinking $571ish is going to be next, and if a retracement doesn’t begin there, then $586ish is likely next.

If SPY rolls over at $571, look for support between $556-$547, and then a resumption back up to $563ish, then $587ish, and then the highs of $613.23 should it continue higher.

My though at this point is $571ish, down to $556ish, then back to at least $586ish.

But again, that could change in a moment with a Truth Social post and/or another tariff escalation meltdown which creates more uncertainty.

$DIA ( ▲ 0.94% ) Dow Jones Industrial Average:

Resistance at $420ish. Expect some resistance there initially, which may turn into a new opportunity to once again increase risk.

$QQQ ( ▲ 0.34% ) Nasdaq:

Expect some resistance here. If not, then at $509. Look for a retracement to turn into a new opportunity to once again increase risk.

$IWM ( ▲ 0.03% ) Russell 2000 (Small Caps):

If above $187ish, then looking for $200ish. If it can hold $200ish, then looking for $210ish.

Resistance between $190 - $197. Expect some resistance there initially, which may turn into a new opportunity to once again increase risk.

If markets perform well in May, look to small caps for some big pops higher during the month. Whether they end up holding those gains is another story, but definitely some good looking opportunities there for those who have developed a consistently profitable trading system.

If I see some choice set ups, I’ll be posting them on StockTwits with targets.

Significant Economic Data from the previous week:

Economic Data to watch this week:

Click the Leave a comment button if you have any questions or comments, or need something clarified. Don’t be shy. The main point here is to improve constantly. Questions and comments help us both and tells me what you are interested in learning/hearing more about.

If you enjoyed this post or found it useful, do me a favor and hit the like (heart button all the way back to the top of the post and to the left) and share it with others.

Learn. Improve. Pass on.