2/25/25 Live Trading Room Market Recap & Trades
With focus on my prediction for yields & when this Growth-to-Value rotation reverses.
Fundamentals Are Getting De-Rated
I begin with the fundy look because that is how consensus views the market. And consensus views are the big money in the market.
“While Q4 2024 is coming in fine and the index should earn a record $64.82/share, Wall Street analysts are expecting Q1 2025 to show a 6.2 percent sequential decline, to $60.83/share.
This is very unusual, with an average long run increase from Q4 to Q1 of 2.6 percent. This sharp decline in current earnings power combined with high valuations (S&P 22.2x forward earnings) means investors must have a high degree of confidence in Q2 – Q4 US economic growth to hold or buy US large caps.
Analysts currently see sequential S&P earnings increasing by 20 percent between Q2 and Q4 2025, a remarkable burst of short-term growth that rarely happens outside of an early cycle economy.” H/t @DataTrekMB
Given the “remarkable burst of short-term growth” expectations for 20% earnings growth into year-end, against a rising tide of macro risks, it’s not hard to imagine fundamental assumptions and earnings estimates get re-rated moving forward.
Then there is the alpha manager thinking:
“Fundamentals don’t matter until they do,” is an expression that I like to believe many a hedge fund manager said while chasing momentum stocks with zero DTE options, while holding heavily-levered MAG7 equities long. AND is the same hedge fund manager buying crash puts Friday while lightening up on those same heavily-levered MAG7 longs because “fundamentals are getting re-rated”.
They are the same ones looking at the Consumer Confidence read-out this morning in awe. Note: it didn’t fall, it plunged to 98.3 from last month’s 105.3 (revised up from 104.1). And somehow “Expectations” showed an even bigger drop, plunging to 72.9 from 82.2 (revised down from 83.9). Don’t ask me how they configure those revisions.
The result: the 10Y yield plunged 11bp - gapping down & below my stated 4.35% level I had been targeting for awhile because it was THE level I warned about on 12/12: YIELDS ABOUT TO SPIKE HIGHER. So we now have a proper back test with TNX sitting on 50W & 10M.
Here is my prediction on yields in this deflation impulse & when de-risking in high beta should end. Tomorrow I’ll discuss why I expect the US Government could shut down March 14th…