HOW I SEE IT – by Bruce
RBC GAM- Global Investment Outlook- Spring 2025
Equity indices down 5% -9% from February 5 highs - so much Trump confusing tariff talk. Or are markets correcting because of a normal correction pattern - 3 pullbacks from September 6/24, November 5/24, January 10 lows- then rallies -all similar trading patterns. Are we setting up for another rally? Mid-March low?
Positives: AAII Investment Sentiment Survey -19.3% bullish/23.6% neutral/ 57% bearish – strong buy signal.
RBC GAM Spring Outlook, “Outlook is clouded by elevated policy uncertainty, maintaining neutral asset mix with preference for less expensive equities. Global Purchasers Managers Indices - after 2 years of sluggish, economic growth PMIs are perking up in many of the world’s major economies on the back of interest rate cuts that began in mid to late 2024. The path towards lower interest rate rates will ultimately depend on the labor market and inflation, though the latter could be stubborn to fall, especially as Trump policies tend to be more inflationary. Although stocks have been volatile investors have been optimistic about the outlook for the economy and corporate profits under the new US administration. Trump’s promise of a political agenda favoring growth, less regulation and lower taxes boosted investor confidence and propelled the S&P 500 to record highs.”
RBC CM Pulse of the market – “Garden variety pullback of 5 to 10% which is our base case. 2025 base case remains 6600 on the S&P 500 and the bear case remains 5775. 5- 10% S&P 500 drops have happened regularly. Investor sentiment is retreating which is bullish -investor sentiment provides more favorable set up for a market returns on a 12-month basis of 15%.”
RBC Dave McKay, RBC “It’s been a strong and busy start to the 2025 fiscal year and our steadfast commitment to putting our clients first as translated into incredible results. First quarter reported earnings of $5.1 billion up 43% from last year. With a premium return on equity of 16.8%. This is the record result that reflects RBC’s financial and strategic strength and client driven growth across each of our business segments.” (buy the dip).
Ed Pennock, “Although tariffs were expected investors are concerned about the potential impact on inflation and economic growth and that uncertainty is leading to increase market volatility.”
Jim Paulsen, “I believe the bull market will persevere this year and market corrections are notoriously difficult to forecast and time. I would not be meaningfully against this ongoing secular bull market but do think this some modest tilts are worthwhile. Economic market messages are difficult to interpret. Some nuggets turned out to be noise. But recent increased messaging from the economy in the market suggest the latest stock market turbulence may get somewhat worse before this bull begins anew.”
Dr. Ed Yardeni, “We continue to bet on the resilience of the US economy. Consumer spending is bound to rebound in February (most like weather related in January). We are not changing the 55% probably assigned to our best case roaring 2020 scenario but we now see less chance of a stock market melt up 10% and higher odds of a recession and bear market 35%.”
Tom Lee, “The 10 best days probably coming this week. Since 1928 missing 10 best days in a year cut returns from 8% annually to -13%. We are seeing signs of investor panic and while many want to exit the market the rule of 10 best days strongly argues against market timing. 10 best days is coming.1. AAII % net bull - 42% last week. 2. Momentum has fallen 8% in the past two weeks. 3. VIX term structure inverted. 4. Trump put returns on weak FEB jobs. 5. Fed put returns on weak Feb. jobs. Markets are oversold in pessimism so high. Bottom line- a gauntlet of a week but stay on target.”
Negatives: RBC CM – “Trump’s tariff threats widen the range of possible outcomes for the economy and injected volatility in financial markets as investors contemplate a variety of scenarios. Negotiations are ongoing, and the ultimate impact of tariffs will depend on their scope size and how long they are into effect. Jim Paulsen, “I suspect the US dollar is headed for at least a temporary cyclical decline in coming couple years. It could lead to a lower stock market. (Look elsewhere -internationally - US lead coming to an end?) Dr. Ed Yardeni - “Trump 2.0 heads, spinning barrage of executive orders, firings and tariffs have rattled, investors and shake confidence in the economy and inflamed inflation fears. Atlanta Feds GDP now model lowered its Q1 GDP forecast significantly on Friday. The volatile model swung in response to January surge and imported goods ahead of Trump’s tariff. In addition, consumer spending was depressed by a colder than usual January.
Brian Wesbury. Is the US already in a recession. While we do expect one a negative real GDP growth report for Q1 is not yet defining evidence. We look elsewhere for confirmation.”
Investment strategy – “Waiting helps you as an investor and a lot of people just cannot stand to wait. If you did not get the deferred-gratification gene, you have got to work very hard to overcome that.” Charlie Munger.
Stock of the Days: PPL, PLZ.UN, TECK.B, CCO & COST
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