Friday Fights and Stock Flights

I forgot to warn all our followers that I was taking a few days off in NYC late last week and most years when I do this if February, the markets sell off hard.  Well, looks like history repeated as the S&P 500 sold off in a near straight line down last Friday over 100 S&P500 points or almost -1.75% on weaker economic data and higher consumer inflation concerns. The worst data point last week was the University of Michigan’s survey showing that consumers’ long-run inflation expectations rose the most (0.3 ppts) in nearly four years and to the highest level (3.5%) in over 30 years.

We discussed this near exact same economic weakness, and ongoing slowing fast trend 2-3 weeks ago in our “Behind the scenes, what many on TV won’t tell you, the economy is slowing fast” video, giving numerous reasons including the ending of the Biden fiscal stimulus sugar high as well as increased uncertainty and economic concerns of the Trump DOGE programs causing increased unemployment and dropping consumer sentiment and retail spending,

Here’s an updated chart on 2-year real-time real-interest rates. As we’ve mentioned for the last few months, down and to the right are growing, but slowing fast.

As one can see, there was a summer peak last year in growth expectations right as the Biden fiscal spending plan peaked in front of the election, and it’s been down ever since.  Slowing until late December when the rate of decent picked up steam.  Yes, it’s most likely, that this recent rapid slowdown in growth has been caused by the weekly Trump administration shock and awe policies, usually on Thursday afternoon or Friday,  on tariffs and government job firings.  Whether one agrees with these policies or not, from an economic perspective as well as a stock market perspective, they cause short term uncertainty for our US consumer led economy and spending slows along with corporate investment plans.  Usually until companies know that the rules are set and won’t change week to week.

At the same time that growth forecasts are slowing, real time inflation expectations have steadily risen since the Trump administration took office.  Here’s the 2-year, real time, BE inflation rate chart.

I guess it took me leaving town for others to show their concerns and sell stocks hard at the end of last week.  Also, a trend we previously mentioned happened time and time again under DJT 1.0 after 2017 when the GOP moved beyond a tax cut agenda to many other priorities often announcing them on Thursday afternoon or Friday near the end of the week.

As we previously mentioned, soft landings in the economy do NOT guarantee no volatility. This time around, the Trump administration seem to be going for the early, “shock and awe”, which financial markets do NOT relish.

The good news? We are quickly getting oversold and historically speaking, nearing what is normally a low in both economic growth expectations in the 1q, a seasonal low in the stock markets, and yes, a seasonal high in inflation concerns.

Investors, as we’ve previously discussed, historically, seasonally, February does tend to be a lower return, higher volatility month for stocks, particularly the first year of a Presidential term. 2025 is proving this statistic true once again and maybe a combination of the tariff actions and DOGE firings are this year’s excuse. I don’t know.  Here’s the historic data on monthly seasonality from Suttmeier’s data group at BAC securities.

As you can see, while February has historically been down the first year of a Presidential term, that down has historically been the best buying opportunity until late summer and 2- proceeded 5-6 straight months of positive returns in stocks.  Historic data of course there are no guarantees, but since our team coined the term the old normal back in late 2022, yes, the stock markets have performed in quite normal ways versus historical economic cycles we are mirroring.  Soft landings, however rare they are. For now, it’s been a bull market, we are in a bull market and however choppy things appear on your TV screens, we advise to continue to run with the bulls, and that’s bad news for the bears.

Investors know that regardless of the path for the economy and financial markets in the next few months, the investment team at OHFG will be here manning the ship and adjusting our models and long/short hedge equity fund where we can. We expect 2025 to be a very active year for active stock management.

Until next week, have a blessed weekend.

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