Here's the Deal with Markets - February 3, 2025

Economy: In Slowdown

Market Cycle: Bullish

_{Week 5 of 52 for 2024: 9.62% of the way through 2025}

Weekly Note:

The market was on track for a strong close to the week, buoyed by a Friday Reuters report that the tariff deadline had been extended to March 1st. Problem was, that was clearly erroneous as the White House stated that extension was not the case about an hour later, confirming that tariffs would still take effect on February 1st. This abrupt reversal sent stocks tumbling into the weekend as traders braced for the inflationary impact of the policy decision.

For readers of Here’s the Deal, this volatility is no surprise. We’ve been expecting a choppy market environment this year, and so far, it has delivered.

Now, as we move into February, it's important to keep in mind that this month is historically the weakest within the market’s strongest six-month period (November to April).

While January ended with short-term weakness, the bigger picture tells a different story as the January Barometer finished positive. The saying goes, “As January goes, so goes the year,” and history backs it up. When the S&P 500 ends January in the green, there’s an 83.8% probability that the full year will also close positive.

With that, the January Trifecta now stands at two out of three: January’s First Five Days were positive, but the Santa Claus Rally failed to materialize. Not bad, and not entirely unexpected as 2025 continues to shape up to be a more volatile year.

With the Lunar New Year now at hand, we can add another historical metric to our market outlook. 2025 marks the Year of the Snake, which has historically aligned with flat market performance. This adds another layer of support to the 2025 Forecast: a strong first half followed by a weaker second half. While no single indicator is foolproof, when multiple signals align, it’s worth paying attention.

The Week Ahead

This week will be a critical test for markets consolidating near their highs as they digest news of fresh tariffs on Mexico, Canada, and China. Many initially assumed these tariffs were merely a negotiating tactic. After all, who in their right mind would govern using market principles which worked in the 1800s?

Yet, even among those well-versed in economics, the prevailing belief remains that this is still just a strategy. If that assumption proves wrong, markets may hold steady for a while, only to eventually realize the tariffs are here to stay. That kind of shift could lead to a slow, grinding decline rather than an immediate drop.

For now, it’s a waiting game. But it is clear volatility is on the rise, and you should expect more of it as the year unfolds.

Meanwhile, Q4 2024 earnings season hits its peak this week. The most important factor isn’t just whether companies beat expectations, it’s how well profits and margins held up. If we start to see profit margins contract, layoffs will likely follow. That would be a major warning sign that the economy is either entering or on the verge of a recession.

Economic Data to watch:

Earnings This Week

WTF of the Week

Politics has a way of turning otherwise intelligent people into their own worst enemy. When approached like a sport, where picking a side matters more than critical thinking, people can end up contradicting their own deeply held beliefs without even realizing it. One moment, they’re adamant about a position; the next, they’ve flipped entirely, all because the they were told to do so by their favorite politician or “news” site. And the most astonishing part? They rarely stop to question it.

Shot (Stated Nov 9, 2024):

Chaser (Stated Feb 1, 2025):

Quote of the Week

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