Stock and GDP Outlook, for Week Ending 04/04/2025
Dimming Light at the End of the Tunnel
Stock prices and the mean expected NGDP growth rate fell for the 5th out of 6 weeks after last week’s reprieve, as volatility and inflation expectations spiked. Even the 10-year inflation breakeven has been above 2% in core PCE terms for the past week, signaling that the current high inflation is expect to be much more than transitory. This was reflected in an updated Market Compass alert that now has the negative outlook for the economy in red font, indicating a firmer warning about additional stock market losses even aside from the tariff threats.
So not surprisingly, the core PCE figure came in hotter than expected for last month.
Inflation is more robust than many have expected, because there is still a positive output gap, according to the market-based NGDP output gap indicator, and forecasts indicate it’s expected to persist for a while longer. An economic slowdown is still predicted by the market-based NGDP forecasts and the inverted Fed Funds yield curve, with inversion continuing until at least 2030.
Therefore, the outlook for stocks and the economy continues to dim, with market expectations of at least a mild stagflation lasting years. The on-again threat of new tariffs on imported cars isn’t helping matters, nor is Trump’s apparent dishonesty on who will pay the price. The risks to the economy continue to seem to outweigh any imaginable potential positive real shocks. Equities continue to remain to be a seemingly poor investment for the short and medium terms.
Note: This post, as is the case with all my posts, should not be construed as offering investment advice. Such advice should be tailored to the individual investor by qualified professionals who, ideally, are fiduciaries.
Economic Data Sources:
https://fred.stlouisfed.org/series/SP500
https://www.wsj.com/market-data/stocks/peyields
https://www.barchart.com/futures/quotes/ES*0/futures-prices
https://ycharts.com/indicators/sp_500_earnings_per_share_forward_estimate#:~:text=Basic%20Info-,S&P%20500%20Earnings%20Per%20Share%20Forward%20Estimate%20is%20at%20a,28.27%25%20from%20one%20year%20ago.
https://www.cnbc.com/quotes/.VIX
https://fred.stlouisfed.org/series/DTWEXBGS
https://fred.stlouisfed.org/graph/?g=Ee9i
https://fred.stlouisfed.org/series/T10Y3M#0
https://fred.stlouisfed.org/series/DGS10
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
https://tradingeconomics.com/commodity/crb?user=nunote
https://www.cnbc.com/quotes/@CL.1
https://www.cmegroup.com/trading/en
https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx
https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.quotes.html