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The Bull Thread

Discussion in 'Stock Market Today' started by bigbear0083, Jul 16, 2017.

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    Post-Election Best Year Since 1985 Bullish For 2025
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    We might be tempted by the post-election year’s notorious history as the worst year of the four-year cycle going back to the end of our database in 1833, the fifth year of Andrew Jackson’s presidency, to lean bearish for 2025. The full four-cycle “191-Year Saga” on page 132 shows that post-election years average a paltry 3.3% return over these past 48 election cycles and that many wars and bear markets have started in a post-election year.

    But post-election years have improved since WWII and since 1985 DJIA averages a gain of 17.2% with eight up years and two down. This is the best average gain of the four-year cycle over this period, besting the pre-election year’s 15.2% average, though the pre-election year has nine wins and only one loss.

    The one-year seasonal chart here shows the S&P 500’s performance during post-election years since 1949 paints a rather bullish picture for 2025. At this juncture I expect the market to be up 8-12% for the year with pullbacks in Q1 and Q3. I am concerned about inflation, valuations and the older weak post-election patterns, we expect the bull market to continue through 2025, though it will likely be a much bumpier ride than it has been the last two years.
     
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    Some Good News for the Bulls
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    “I am an optimist because I don’t see the point in being anything else.” Abraham Lincoln

    What a start to 2025, nearly picking up where 2024 left off. Yes, stocks fell in December and during the historically bullish Santa Claus Rally period, but the S&P 500 just made another new all-time high and is up nearly 4% in January already.

    Here are two bits of good news for the bulls as we all freeze across this great country.

    The First Five Days Were Positive
    Although you wouldn’t expect there to be much correlation here, the first five days of a new year can sometimes foreshadow how the rest of the year might go.

    Since 1950, the first five days were in the green 48 times and the full year was higher 81.3% of the time and up 14.2% on average, both better than the average year gain of 9.5% and up 72.0% of the time. Digging in a little bit more, a negative first five days suggests virtually a flat year on average and higher only 55.6% of the time. This matters, as the first five days in 2025 were up 0.62%, suggesting some potential good news for the bulls.

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    Post-Election Years Have Been Strong Lately
    Did you hear we had an election last year? That of course means this is a post-election year, a year that historically has just been kind of average. As you can see below, since 1950, most of the big gains took place in pre-election years, while midterms years could be trouble. So this means election and post-election years tended to be more along an average type of year.

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    Here’s where things get interesting though. In more recent times, post-election years have been very strong. Going back 40 years (to 1985) post-election years have gained more than 18% on average and have been higher nine out of ten times!

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    Here we broke it down by all post-election years going all the way back to 1897 and as you can see, only Bush in 2001 saw a negative return during this year in the cycle in more recent times.

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    To put a bow on this discussion, here are the returns for the four-year Presidential cycle since 1950 compared with the past 10 cycles. Post-election years are far and away the best performing year more recently.

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    What about taking the extra step and breaking it down by whether there was a new president versus a president in their second term? Here we found that stocks once again do much better in post-election years under a second term president, yet another positive for 2025.

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    2021-2024 Textbook 4-Year Cycle in The Books
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    With a 2021-2024 textbook 4-Year Cycle in the books I’ve reset the cycle to track 2025-2028. The traditional first-year slump hasn’t materialized since Ronald Reagan’s reelection in 1984.

    This may be attributable to some compression of the cycle where first years have become like third years – a sort of midterm pre-election year. Midterm elections have become more important as incumbent presidents try to hang on to the slim congressional margins we’ve seen in recent years.

    Q1 of post-election years and Q2-Q3 of midterm years have been notable weak spots with the sweet spot of the cycle running from Q4 midterm year to Q2 pre-election year.
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    New York Home Prices on Top
    Tue, Jan 28, 2025

    Updated home price data from S&P CoreLogic Case Shiller was published this morning through the month of November 2024. Below is a summary table of key results across the 20 cities/regions tracked by Case Shiller.

    Most cities saw home prices decline month-over-month from October to November, with San Francisco and Seattle down the most at roughly -0.75%. Boston, Miami, and New York were the only cities that saw meaningful gains month-over-month.

    Over the prior year, 19 of 20 cities were up, with Tampa the only city down at -0.37%.

    New York ranks first when it comes to year-over-year price gains at +7.32%.

    After a major jump in home prices in the immediate aftermath of the pandemic, we saw a small dip in 2022 and 2023 when risk assets sold off hard. Since early 2023 lows, New York is also the city that has seen home prices jump the most at +16.76%.

    Additionally, New York is now the only city where home prices are currently at all-time highs. On the flip side, San Francisco, Seattle, and Denver are all down more than 5% from all-time highs.

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    Below is a historical look at Case Shiller home prices for the 20 cities tracked along with the composite indices. We've highlighted New York in green because it's the only city where prices are at all-time highs.

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    Bullish 2025 Forecast on Track
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    2025 is tracking the bullish post-election trend so far this year. We are encouraged S&P 500 is up 3.2% despite the DeepSeek deep fake. Our January Barometer will be positive unless the S&P 500 drops 189.55 points today. As January Goes, So Goes The Year.

    Gains this year will be tougher to come by and shallower than the past two years. Our 2025 annual forecast for 8-12% gain with a lot of chop and weakness in Q1 and Q3 is on target. Post-Election years have been much better in recent years but Q1 is a weak spot.

    Expect more volatility and chop in the near term. February has been notoriously weak and even more so in post-election years. February is the worst month for S&P 500, NASDAQ and Russell 2000 in post-election years since 1950.
     
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    As Goes January, So Goes the Year? The Bulls Hope So.
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    “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Mark Twain

    An effect widely known as the January Barometer looks at how the S&P 500 does in January and what it may mean for the next 11 months. It is known by the saying, ‘So goes January, goes the year’ in the media. The late Yale Hirsch first presented the phenomenon in Almanac Trader 1972. Today the Almanac is carried on by Yale’s son Jeff. I’ve known Jeff for years, and I must say, he is great, and I believe the work they do is some of the best in the industry on market seasonality, calendar effects, and many other indicators.

    Let’s look at the January Barometer. For starters, two years ago we saw the S&P 500 lower in January and it was followed by a vicious bear market. Then the past two years stocks were higher in January and we saw back-to-back 20% years.

    Historically speaking, when the first month was positive for stocks, the rest of the year was up 12.3% on average and higher 86.7% of the time. And when that first month was lower? It was up about 2.1% on average and higher only 60% of the time. Compare this with your average year’s final 11 months, up an average of 8.1% and higher 76.0% of the time, so clearly the solid start to ’25 could be a positive for the bulls. Lest you fear January has been too strong, a good start to January tends to see strong gains the rest of the year as well, as we discuss below.

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    Here’s another way of showing what tends to happen based on whether January was higher or lower. We know markets trend, but my oh my, what that first month does can really pick the direction for the full year.

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    With one day to go in January, the S&P 500 is up more than 3%, which has been a very good sign. Below we show all the times the first month of a new year gained at least 3% and you can see that continued outperformance is perfectly normal. The full year had and average gain of 21.3% and was higher nearly 93% of the time, which should have bulls smiling.

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    This year saw stocks lower during the historically bullish Santa Claus rally period, but then rallied the first five days of the year and now all of January. I looked more closely at a strong first five days in Some Good News For The Bulls, but what does it mean when we don’t have a Santa Claus Rally, but both the first five days and January are higher? Interestingly, this combo has happened only three other times in history, so we are dealing with a very small sample size. The good news is stocks were higher two out of three times with more than a 20% median return.

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    We’ve been bullish and expected the late December weakness to be fairly contained, and that has fortunately played out. The data in this blog does little to change our overall optimistic tone in 2025, but be aware that February can be a banana peel month (which I’ll discuss soon enough). For now, enjoy the January returns and have a great weekend!
     
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    The Tariff Man Cometh, but What’s the Playbook?
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    On February 1st, President Trump signed executive orders (EO) imposing tariffs on Canada, Mexico, and China, effective 12:01am February 4th. The orders included:
    • 25% tariffs on Canada, apart from energy imports (tariffed at 10%)
    • 25% tariffs on Mexico
    • 10% tariffs on China
    These tariffs applied to all goods and would be over and above existing tariffs, including “de-minimus” goods. That means even a small gift bag sent from Toronto to Chicago would be subject to tariffs, not to mention small packages from China. (That’s one way a lot of Chinese exporters got around existing tariffs.) The White House placed some conditionality on these tariffs, including improvement in the immigration situation and improvement in the drug (fentanyl) situation.

    These tariffs are a big deal, since it’s universally applicable across goods coming from America’s three largest trading partners, which is why markets reacted quite negatively as soon as trading started last Sunday night. However, the good news is that there was a big reprieve on Monday, as the White House hit the pause button on both the Mexico and Canada tariffs. Equity markets recovered from losses, though they closed the day lower (the S&P 500 fell about 0.8% on Monday, February 3rd). The Canadian dollar and Mexican Peso fell over 2% after the tariffs were announced, but more than recovered after the tariff pause announcements on Monday, eventually ending up with slight gains against the US dollar.

    Canada and Mexico Tariffs Paused, but There’s Still Cloud Cover
    The 25% tariffs on Canada and Mexico were paused by President Trump for 30 days. This was after conversations he had with the heads of Mexico and Canada on Monday.

    President Claudia Sheinbaum of Mexico said they reached a series of agreements to pause the tariffs, including, reinforcing the border with 10,000 Mexican National Guardsmen to counter drug trafficking. The US is expected to prevent trafficking of high-powered weapons into Mexico.

    The pause on Canadian tariffs came later in the day, after two phone calls between Trump and Canadian Prime Minister Justin Trudeau. Canada will spend about $680 million on border security, pushing ahead with plans that have been in the works. In addition, they will also appoint a “fentanyl czar,” list cartels as terrorists, ensure 24/7 eyes on the border, and launch a Canada-US joint strike force to combat organized crime, fentanyl, and money laundering.

    But this isn’t over.

    For one thing, teams from Canada and Mexico need to work with US negotiators to secure a security and trade deal over the next month. Therein lies the rub, as Trump will clearly expect trade concessions from both parties. Security arrangements will likely also need to be quantified and ensure mechanisms for verification. Trade is relatively “easier” to measure, but even here, it’s not simple. China reneged on the “Phase 1 Trade Deal” they signed during Trump’s first term in office, falling well short of their commitments to buy US goods.

    Second, the 10% tariffs on Chinese goods went into effect at midnight on Tuesday. These are not as big as those proposed on Canadian and Mexican goods, but it could still be significant for some sectors (including smartphones and computers). China retaliated with tariffs on US coal, gas, and other goods — but these are not that significant, and perhaps indicates China’s willingness to negotiate. As with Mexico and Canada, there may be a temporary reprieve if Trump and President Xi of China have a fruitful talk.

    Third, Trump’s next target is likely Europe. Expect more announcements on this front in the upcoming weeks. Unlike Mexico and Canada, both China and Europe may be less incentivized to reach a quick deal (they may not have much to offer anyway).

    These Tariffs Are a Big Deal
    These tariffs, assuming they are imposed, are significant. Even if it doesn’t happen, the cloud of uncertainty is something businesses will have to deal with. If it does happen, that would be quite a massive shock — much larger than all the trade actions taken in Trump’s first term. Canada, China, and Mexico make up about 43% of US goods imports, and about 41% of US export destinations, as this chart from the Council of Foreign Relations (CFR) illustrates.

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    An immediate problem is oil and gas, which is especially salient for inflation and the Federal Reserve (Fed). The US is the largest producer of oil in the world. However, it mostly produces “light, sweet” crude oil. But US refineries, which refine oil into gasoline/diesel/etc., require “heavy” crude, which it imports from other countries. Especially Canada. The US’s biggest import from Canada is crude oil and other petroleum products, making up over a third of Canadian imports.

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    There’s a reason why the Trump administration chose to impose only 10% tariffs on Canadian energy. Prices are still likely to go up. 10% tariffs translate to ~ $6/barrel on Canadian crude, equivalent to about 14 cents/gallon. However, the impact is going to be quite localized, with the Midwest more likely to be impacted. Areas in New England may also see higher electricity prices (for example, Maine imports 100% of its heating oil from Canada).

    This will also be a huge blow to the North American auto industry. Vehicles and parts make up the largest portion of imports from Mexico, at about a fifth of all US imports. In reality, there really is no US-Canada-Mexico trade. Instead, it’s all one big zone, i.e. North America. This is especially true for the auto industry. Cars/trucks and various parts move across supply chains situated across all three countries, and sometimes cross borders multiple times.

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    In fact, a lot of the content in Mexican motor vehicle exports to the US originates in the US. Ultimately, a 25% tariff on Mexico and Canada will raise production costs for automakers, potentially adding up to $3,000 to the price of 16 million vehicles sold in the US. Most automakers are significantly exposed to Canada and Mexico tariffs hitting their plants. About half of the cars and light trucks exported by Mexico to the US in 2024 were made by the Big 3 in Detroit.

    Mexico is also America’s largest source of imported fresh fruits and vegetables. The 25% tariffs will hit all this produce at the worst possible time, since winter is when the US relies most on imports.

    All this also tells us that Mexico and Canada are especially reliant on trade with the US, rather than the other way around. Trade makes up ~ 70% of both economies’ GDP. About 80% of Mexico’s exports come to the US, while about 70% of Canadian exports come to the US. Whereas exports are not a significant piece of the US economy. This asymmetric dependency is perhaps what Trump is hoping to leverage — to get them both at the table, and extract concessions.

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    China Could Be Tricky
    China is less dependent on the US. Trade (imports + exports) makes up less than 40% of the Chinese economy, much lower than about 60% just two decades ago. Trade with the US has also pulled back significantly, especially areas which were hit by tariffs in 2018-2019, though China got around these by increasing trade with countries like Vietnam, and even Mexico. In fact, China’s share of global trade has actually increased by about 4% since 2016. All this means the US has much less leverage over China, relative to Canada and Mexico. But this is why there is a possibility of seeing universal tariffs. That way China can’t get around US tariffs. And why these first set of tariffs may not be the last ones we see.

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    In 2018, the Chinese retaliated in several ways, zeroing out soybean imports from the US for a year (hitting states like Iowa), adding tariffs on all other US agriculture imports, and halting purchases from Boeing. Another thing to keep an eye on will be their currency. Unlike the CAD and the Peso, Chinese authorities control the Renminbi. After the trade war started in February 2018, the Chinese renminbi fell about 14%. China’s currency is currently trading even below 2019 lows, and it’ll be interesting to see where Chinese authorities fix their new level over the next several days.

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    With respect to any “deal,” that would have to come after extensive negotiation. This is what happened in 2018. Moreover, China did not meet the terms of the deal. Far from it, in fact. As part of the “Phase 1 Deal” signed on January 15th, 2020, China was supposed to buy an additional $200 billion of US goods. As the Peterson Institute has detailed, China fell well short of this, buying only 58% of the US exports it committed to purchase over 2020-’21.

    China purchasing manufactured goods were a key piece of that deal, making up 70% of the value of all goods covered by purchase commitments. Again, they were even further below commitments in this area. US manufacturing exports to China nearly doubled between 2009 and 2017. Then it flattened in the second half of 2018 and fell by 11% in 2019 (partly due to retaliation against Trump’s first round of tariffs). But even after the Phase 1 deal, US manufacturing exports fell another 5% (2020), falling 43% short of the legal commitment for 2020, and 12% below pre-trade war levels.

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    The US is going to need stricter enforcement mechanisms this time around, which is going to make things even harder. Or we get a rerun of what happened after the last trade deal with China. All of this will take time to play out.

    Will These Tariffs Hit Inflation?
    It’s hard to answer this question in a definitive way, because there are so many things intertwined with tariffs, including retaliatory measures, currency changes, demand shifts, and supply dynamics.

    All else equal, tariffs are a tax, and that means prices will go up. Note that tariffs will send the price level higher. But technically, a one-time increase in the price level is not inflation. Prices would have to keep going up for higher inflation, which would only happen if tariffs kept ratcheting higher. But as the 2024 election showed, consumers care a lot about price levels even if inflation is low.

    Goldman estimates that higher tariffs on Canada and Mexico raises the effective tariff rate by 7%-points, implying a 70 bps increase in the core Personal Consumption Expenditures Index (core “PCE,” the Fed’s preferred metric of inflation), and a 0.4% hit to GDP. Existing China tariffs already contribute 0.3% to core inflation (core PCE is currently up 2.8% year over year).

    However, we don’t know any details yet, and all else is never equal. Let’s look back at 2018 once again.

    Core PCE inflation ran around 1.8% annualized in 2018-’19, below the Fed’s target of 2%. So it’s natural to think that the 2018-’19 trade war didn’t have any impact on price. However, this is not the case. Prices in tariffed categories rose by almost exactly the amount of imposed tariffs , just as you would expect. However, we were already in a downtrend for core goods inflation prior to the tariffs being imposed, which continued for non-tariffed goods and offset the overall inflationary impact.

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    Another dynamic in play in 2018-’19 was that companies did not pass higher input costs onto customers (a lot of those tariffs were on “intermediate” goods). But we may be in a different dynamic now, where companies feel like they can pass higher costs to consumers. That’s what they did in 2021-’22, even as they maintained their own margins (and even expanded them). In fact, Raphael Bostic, the Head of the Atlanta Federal Reserve, recently said that leaders at companies he speaks to said they would pass higher costs through “100 percent.”

    Tariffs Are Likely to Hurt US Manufacturers
    Ultimately, the 2018-2019 trade war hurt US manufacturers. The trade war meant US manufacturers already started down a hole, thanks to retaliatory tariffs and a strengthening dollar. US goods exports were flat across 2018-2019. On top of that, China also failed to live up to its commitments to buy US manufactured goods, as I discussed above.

    It’s likely the same happens again. The dollar has already been strengthening, rising almost 9% since the end of September — a big move over a fairly short period of time (4 months). As we wrote in our 2025 Outlook, the strong dollar does two things:

    • It mitigates some of the inflationary impact of tariffs
    • It makes US exports more expensive
    Over the last two years, exports have been flat amid an elevated dollar. Q4 2024 was especially bad — real goods exports fell 5% (annualized), pulling real GDP growth down by 0.4%.

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    Market Impact – The Fed Doesn’t Like Uncertainty Either, and That’s a Problem
    As I pointed out earlier, it’s going to take a while to understand any inflationary impact of the tariffs, assuming they even happen. Given the methodology of inflation metrics, it’s going to be months before we have any understanding of the impact.

    However, that creates a problem, as it could push the Fed to sit on an extended pause. Thus, keeping rates elevated longer may be needed, raising the odds that something breaks.

    I just wrote a couple of weeks ago after positive CPI data that the inflation outlook still looks good. Powell himself said the same thing after their meeting last week. He was surprisingly positive about the inflation outlook. At the same time, the Fed is increasingly concerned about inflation uncertainty. That is why they got hawkish in December. In the first post-election Fed meeting, they cut rates by an additional 0.25%, but their dot plot projections showed just 2 cuts in 2025 (versus the prior projection of 4 cuts). Also included in the dot plot, 14 of 19 members thought inflation uncertainty is higher. And 15 thought inflation risks are “weighted to the upside”. These are big shifts from their September projections, as you can see below.

    [​IMG]

    Back in December, Powell was reluctant to admit this shift was because of tariffs and deficit spending by the incoming administration. However, he readily admitted it last week after their January meeting (and it did come out more in the minutes). Powell pointed out that there is elevated uncertainty due to significant policy shifts, from tariffs, immigration restrictions, fiscal policy (deficits), regulatory policy.

    Trump’s actions this weekend suggest they were right to worry. Fed members’ statements after the tariff announcements echoed their worries.

    Bostic: “I had uncertainty on December 31. The amount of uncertainty that we have today is greater than that.”

    Chicago Fed President, Austan Goolsbee: “Now we’ve got to be a little more careful and more prudent of how fast rates could come down because there are risks that inflation is about to start kicking back up again.”

    Boston Fed President, Susan Collins: “The kind of broad-based tariffs that were announced over the weekend, one would expect to have an impact on prices,”

    Yes, the tariffs were pulled back, but for now, it’s temporary. Ongoing uncertainty for Fed members may start to increase the probability of no cuts at all in 2025, a potential headwind for risk assets. Just look at the last three months: equity markets have moved in tandem with the probability of no rate cuts in 2025 (as priced by fed funds futures).

    • From November 5th through December 6th, the probability of no cuts in 2025 fell from 10% to 4%, i.e. markets were pretty sure of cuts in 2025. The S&P 500 gained over 5%.
    • From December 6th through January 10th, the probability of no cuts in 2025 surged to over 30%. The S&P 500 pulled back by 4%.
    • From January 10th through January 27th, the probability of no cuts in 2025 fell back below 10%. The S&P 500 gained over 5%.
    • Since then (through February 3rd), the probability of no cuts in 2025 has risen to almost 15%, and the S&P 500 has pulled back about 2%.
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    For now, markets appear to be betting that the inflation outlook looks good, and that we’re still on track for 1-2 cuts in 2025. But this is really the big risk, and likely how tariffs, and uncertainty around them, may impact the stock market over the next several months.

    Will Deficit Spending Create A “Get Out of Jail Free” Card?
    It helps to go back to 2018-2019 to understand this. Deficit spending surged after the Financial Crisis. The primary deficit rose to about 6.5% of GDP (the primary deficit is spending excluding interest payments on debt). However, the deficit started to shrink after 2010, falling to about 0.5% of GDP in 2015. This is historically what happened as economic expansions wore on. Post-recession deficits shrink, and primary balances eventually head into a surplus. But the late 2010s were an exception. A big increase in federal spending, and lower revenue on the back of the 2017 tax cuts, sent the deficit higher. The primary deficit grew to about 2.1% of GDP by the end of 2019. Just from 2018 through 2019, the primary deficit grew by 70 bps, from 1.4% to 2.1% of GDP. As you can see from the chart below, these deficits were completely outside the historical norm. In both the 1990s and 2000s, the primary balance eventually became a surplus.

    [​IMG]

    Deficits provided a big boost to the economy in 2018-‘19, despite the trade war. Real GDP grew 2.7% annualized over the two years, above the 2.4% trend growth. A big part of this was fiscal spending, with government spending rising 3.3% annualized over that period (reversing close to half a decade of austerity). Tax cuts also pushed investment spending up in 2018, though it eased in 2019 amid the trade war (especially structures and equipment investments).

    Can government spending more than offset any headwind from tariffs this time as well?

    The short answer is yes, but I predict a couple of hurdles. One is that fiscal spending has to be authorized by Congress, and Republicans don’t have a lot of room to maneuver in Congress given their narrow majority in the House. Republicans in Congress are working on a large tax policy package. This will be needed simply to avoid tax increases on January 1st, 2026, when several provisions of the 2017 tax cuts sunset. But they’re also planning additional tax cuts, including a further reduction of the corporate tax rate from 21% to 15%, amongst other measures.

    In my opinion, the tax package is likely to pass, but we may have to wait a while for clarity on provisions, let alone the amount by which it’ll increase the deficit. And then of course, final passage.

    The second hurdle is that the deficit is already really large. The primary deficit is close to 3% of GDP. Once you include interest payments on debt, it’s about 6% of GDP (thanks to high interest rates). That’s going to be an issue for two sets of people: 1) members of Congress who still care about the deficit (a rarity, but still), and 2) the Fed, who’ll be worried about its inflationary impact. A big deficit-busting package may result in the Fed sitting on its hands throughout 2025, with no cuts at all. But those deficits may overcome any headwinds from higher interest rates, at least in the near-term.

    TLDR or “Too Long, Did Not Read” Version for Those Who Just Want the Takeaway
    The proposed tariffs on Canada, Mexico, and China are larger than anything Trump did in his first term. Yes, the tariffs on Canada and Mexico have been paused, but there’s a still a lot of uncertainty. (Will they reach a deal? What are the terms of the deal? Are those terms enforceable? Who verifies?). If anything, there’s an enormous tariff cloud cover that wasn’t there last week, including the prospect of 25% tariffs on Canada and Mexico in a month, 10% across the board tariffs on Chinese imports starting Tuesday, and higher probability of big tariffs on incoming European goods.

    The economic and inflationary impact of the tariffs are very unclear, simply because we have no idea of the size of the tariffs that may happen, how other countries will respond or retaliate, and how currencies will move in response. We’re totally in the dark from that perspective, but in some ways, that’s secondary to markets. With respect to the impact on markets, there’re two key aspects.

    One is the Fed. The uncertainty is likely to push them into an extended pause. They’re going to want to have a better sense of the impact of tariffs before proceeding with more cuts. If there’s a prolonged delay as the tariff can is kicked down the road, and deals are being worked out, we could even see rate cuts pushed out to 2026, assuming the labor market doesn’t falter or we don’t get some other negative growth shock (something we shouldn’t root for because bad is bad news). That’s not going to be good news for stocks.

    The other key is Congress. The economy is likely to see headwinds on housing from higher rates, as well as headwinds to business investment due to tariffs (as in late 2019). But deficit-financed government spending could more than offset these. As we wrote in our 2025 Outlook, opportunities like tax cuts can potentially outweigh threats from tariffs and higher rates. However, the sequencing matters, and now we have the threats coming ahead of opportunities. That’s a recipe for volatility, and something that can sap animal spirits. But we’re barely in the first innings, and there’s a long way to go.
     
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    Welcome to the Worst Month of the Year in a Post-Election Year (and Why American Doesn’t Want the Eagles to Win)
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    “The only place success comes before work is in the dictionary.” Vince Lombardi

    First things first, February maybe just started, but it has already seen a great deal of volatility around tariffs. The big question I have is, Should we be surprised? It turns out that February in a post-election year is actually the worst month of the year on average, so maybe we are simply due for some volatility? Perhaps.

    Hear me out. Maybe it is quite common for the honeymoon period after the election from November – January to be just peaches, but then February comes and reality hits. Or maybe around February is when a President comes out with some of the more controversial policies? Just get them out of the way early and move forward? Whatever the exact reason, the S&P 500 has been down 1.3% on average in post-election years and whether it is higher has been a coinflip, so some volatility or weakness now shouldn’t be a surprise.

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    Taking this a step further, since 1950, over the past decade, and over the past two decades, the month of February has once again one of the worst months of the year for stocks.

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    Breaking things down by the full four-year presidential cycle shows the first quarter of a post-election year is one of the worst in the entire four year cycle. Yes, January got off to a nice start, but the calendar isn’t doing anyone any favors right now.

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    Lastly, the second half of February is historically the banana peel part of the month.

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    The Super Bowl Indicator
    Now with the serious part out of the way, let’s get to the fun part of this blog.

    First things first, don’t ever invest based on who wins the Super Bowl. Or what color Taylor Swift will wear at the big game, or the coin toss, or how bad the refs will be (who are we kidding, we know they want the Chiefs to win). With that out of the way, it is Super Bowl season, and that means it is time to talk about the always popular Super Bowl Indicator!

    The Super Bowl Indicator suggests stocks rise for the full year when the Super Bowl winner has come from the original National Football League (now the NFC), but when an original American Football League (now the AFC) team has won, stocks fall. Of course, this is totally random, but it turns out that when looking at the previous 58 Super Bowls, stocks do better when an NFC team wins the big game.

    This fun indicator was originally discovered in 1978 by Leonard Kopett, a sportswriter for the New York Times. Up until that point, the indicator had never been wrong.

    We like to make it a little simpler and break it down by how stocks do when the NFC wins versus the AFC, ignoring the history of the franchises. As our first table shows, the S&P 500 gained 10% on average during the full year when an NFC team has won versus 8.1% when an AFC team has won. Interestingly, the AFC and NFC have each won 29 Super Bowls.

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    So, it is clear-cut that investors want the Eagles to ground the Chiefs and win, right? Maybe not, as stocks have gained over the full year 12 of the past 13 times when a team from the AFC won the championship, going back 21 years. In fact, the only time stocks were lower was in 2015, when the full year ended down -0.7%, so virtually flat.

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    By my math, there have been 58 Super Bowls and 22 different winners. I broke things up by franchise and city. For instance, Baltimore has won three championships, but one for the Colts and two for the Ravens. So I differentiated the two. Then the Colts won one in Indy, so I broke that out as well. Either way, I still don’t see my Bengals on here, but I expect that to change next year! Remember, Joe Burrow is the only man who can beat Patrick Mahomes and Josh Allen with a 5-3 record against them combined and a winning record against both, but I digress.

    Getting to the two teams in it this year, the Chiefs have won it all four times and stocks gained 15.9%, while the Eagles have won it all only once and stocks fell about six percent back in 2018.

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    It might not matter who wins, but by how much they win. That’s right, the larger the size of the win, the better stocks do. (Let’s have another disclosure that nearly everything I’m saying here isn’t in any way, shape, or form related to what stocks actually do.)

    That’s right, when it is a single digit win in the Super Bowl, the S&P 500 is up less than 7% on average and higher about 62.5% of the time. A double-digit win? Things jump to about 11% and 79%. And wouldn’t you know it, when the final score is three touchdowns or more, the S&P 500 gained 13.6% for the year and is higher about 85% of the time.

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    Here’s a list of all the big blowouts and what happened to stocks those years. Not too bad, huh?

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    Who should you root for? Personally, I can’t stand either team, but I guess I’ll just say when Philly wins a Super Bowl or World Series really bad things tend to happen. I’m honestly still not sure I can root for Mahomes and his ref buddies handing him another trophy even knowing this, but it is worth at least knowing.

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    Here are 12 other takeaways I noticed while slicing and dicing the data:
    • The NFC and AFC have won 29 Super Bowls each.
    • The past three Super Bowls have been decided by 3 points each, the closest three Super Bowls have ever been in a row (and small enough for a well-timed flag to make the difference).
    • The Steelers and Pats have won the most at six, but the 49ers sit at five and the Chiefs could match them with a win.
    • As great as Peyton Manning was, he only won two Super Bowls. His brother also won two. Odds are their kids will win a few more. Or maybe a nephew. (We’re looking at you Arch.) Omaha, Omaha!
    • The Lions, Browns, Jags, and Texans have still never made the Super Bowl. I tried to tell all my Lions friends it wasn’t happening!
    • The NFC won 13 in a row from 1985 (Bears) until 1997 (Packers).
    • The Bills made the Super Bowl four consecutive years, losing each time.
    • The highest scoring game was 75 total points in 1995 between the 49ers and Chargers.
    • The lowest scoring game was only 16 points in 2019 when the Pats beat the Rams.
    • The closest ever was a one-point win for the Giants over the Bills in 1993 (the Scott Norwood game).
    • Three years ago my Bengals were hosed with a horrific holding call in the endzone at the end of the game to literally hand the Rams the game. The script is real my friends.
    • In 1990 the 49ers beat the Broncos by 45 for the largest win ever.
    So, there you have it, your complete breakdown for the big game. I’m saying the Eagles, as I can’t believe the NFL would rig another game for the Chiefs with the whole country watching! Have fun and here’s to moving President’s Day to the day after the Super Bowl, one thing we all can agree on!
     
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    Go Chiefs
    Fri, Feb 7, 2025

    As Super Bowl LIX approaches, Americans are quickly finalizing party plans for Sunday, and this year’s spread of just 1.5 points suggests that Sunday’s game could come down to the final seconds. Not only is this year’s Super Bowl expected to be close, but it will also break what is a tie in each conference’s total number of Super Bowl wins at 29 each. In the early years of the Super Bowl, the AFC dominated, but a 13-year drought from Super Bowl XIX to Super Bowl XXXI put the NFC comfortably in the lead.

    After Super Bowl XXXI, the NFC had won 7 more Super Bowls than the AFC, which was its widest ever margin. Since then, there has been much more parity between the two conferences where neither has seen a wide cumulative advantage.

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    Now for the important stuff. Which teams winning the Super Bowl have historically had the most positive and negative impact on the market? The table below lists every team that has won a Super Bowl (20) along with how many each team won and how the S&P 500 performed for the remainder of the year after each team won. With four championships up to this point, the Chiefs are tied with the Packers and Giants for fifth overall, but if they win Sunday, they will move into a tie with the 49ers and Cowboys for third place overall. The Eagles, meanwhile, are one of five teams with just one Super Bowl championship, and if they win on Sunday, they’ll join four other teams (Colts, Ravens, Rams, and Dolphins) with two each.

    In terms of market performance, in the four prior years when the Chiefs won, the S&P 500’s average performance for the remainder of the year was a gain of 12.4% with positive returns 75% of the time. Regarding the Eagles, their only win was in Super Bowl LII in February 2018. After that win, the S&P 500 fell by over 9% through year end. Unfortunately, this year’s game isn’t between the 49ers and the Steelers. Both teams have won at least five Super Bowls over the years, and the S&P 500 has traded higher for the remainder of the year after every one of their wins!

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    In addition to looking at market performance following which team wins the Super Bowl, we also looked at forward returns following different scenarios in the game. While the S&P 500 has rallied an average of 12.4% after the Chiefs won the Super Bowl, after their two losses, the S&P 500 rallied an average of 18.4%! Overall, though, the best scenario for a bull is a high-scoring game. As shown in the chart, in years when the loser scores at least 28 points, the winner scores at least 35, the total is at least 60, or it’s a blowout (21+ points), the S&P 500’s average rest of year gain has been at least 10%. Conversely, in those years when the total is less than 31, the winner scores less than 21, or the loser scores less than 8, the average rest-of-year performance for the S&P 500 was +5.7% or less.

    It should go without saying that the score of the game or even who wins has zero impact on how the stock market will perform for the remainder of the year, but some of these online betting platforms have some even crazier bets people can make. At least these figures will give you something to talk about if the game or commercials start to get boring! Enjoy another Super Bowl Sunday!

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    Positive January Barometer Greatest Outperformance
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    No other month signals as much upside for the year when it’s up than January. Since 1938, years with a positive January outperformed a down January by 10.6%. Over the following 12 months, the outperformance grew to 11.3%.
     

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