Stock Market: Are We Heading for a 70s-Style Crisis in 2025? What’s Going On?

High inflation? Wars in the middle east and Russia and Ukraine? Protests on college campuses into school year ends in May? There are quite a few stock strategists and economists who have made many valid comparisons to the early 70’s and what has been going on the last few years globally and in the politics, socio-economically, and some even in the stock markets. While I do have an MBA, I’ve taken all the economics and finance classes you can think of, and I have managed money for other people for almost 30 years now, my historic studies of the economy and the financial markets, whether it be stock, bonds, or commodities. Tell me, that it is NOT currently a 70’s repeat here in the US and financial markets, however, there is a slight chance of a similar negative outcome in 2025 and on in stocks if Central Banks around the world error in their ways over the coming 6-9 months. This is going to be a short episode of stock talk and hopefully it will go as smoothly as the hit early 70’s Marvin Gaye song, “What’s Going on”.

The lingering question for stock markets, investors, traders, asset allocators, sector rotators and our economy is? What does “Higher for longer” mean? And with the Fed still holding to that script, while other central banks start cutting rates, will the Fed break something in the economy and the financial markets before they break inflations back in their own eyes?
Frequent viewers know I look to the bond market for clues and cues to what’s going on in the markets now, and what might be going on in the future because of it. Our team doesn’t just look at nominal interest rates, which are the ones you see quoted on TV, your brokerage account, or by most discussing financial markets. Our team looks at the two components of Treasury yields. Those two once again are 1. Inflation expectations and 2. Real interest rates. Inflation, as we all know, erodes the purchasing power of your money over time. Real interest rates are the premium bond investors require for holding Treasury bonds. The level and trend in real interest rates of a treasury bond goes a very long way in affecting the overall PE investors are willing to pay for a stock and what types of stocks investors favor.
When Jerome Powell or the other Fed governors come on TV talking higher for longer, delayed interest rate cuts, or fewer cuts in interest rate cuts in the future to combat inflation, they are attempting to jawbone investors and keep the “real interest rate” component of nominal Treasury yields, which is used as the “risk free rate”, high.

When economic data comes out like it did the morning of Friday May 31st, traders and their computers almost immediately adjust their expectations of real-time real interest rates and their computers buy and sell different baskets of stocks and sectors based on that real time data. I know you’re thinking to yourself, but Chris the PCE inflation data was just in line with expectations and the markets opened down and closed up well off their lows with the value biased Dow index registering its biggest daily percentage gain since November 2023.

Most analysts attributed the rally to month end repositioning, which did help, as did it also being a payday so there are blind price agnostic index fund buying usually. However, I believe the catalyst was not the PCE data but rather the significant weakness and downward revisions in other economic data that came out after the PCE. Adjusted for inflation, both overall consumption and disposable income dropped slightly in April and came in weaker than expected. Core prices rose less than expected on a month-to-month basis, and the declines in “real” consumption and income means that the economy continues to slow as do price increases. In fact, a number of retailers announced price cuts on thousands of products last week in an effort to stimulate consumer demand. Price cutting is not a sign of a strong economy or consumer.
Getting back to real time data, here’s a chart of the 5-year real interest rate on a daily basis for the last 5 years.

chart of the 5-year real interest rate on a daily basis for the last 5 years.

As one can see, peaks in it, like late October 2023 have coincided with lows and pivots up in stocks, broad indexes like the SP500, and particularly value biased stocks with higher debt loads, small cap stocks with less dominant positioning in their markets, commodities, and eventually less profitable tech stocks. Sustained rises and higher trending real rates like occurred in 1q22 through the 3rd quarter of 2022 have hurt stocks and bonds together and have been particularly hard on high growth stocks and small cap stocks. Here’s the same daily chart of the SP500 with the same timing points and pivots up and down over the last 5 years circled.

daily chart of the SP500 with the same timing points and pivots up and down over the last 5 years circled

As we have messaged for a number of years, level and trend in this real-time data series is key to divining shorter term market moves. How short? Well, here’s an uber short term chart of the same 5 year real interest rate last Friday May 1st and a similar very short term 5 minute minute chart of the SPX index. First the SP500.

short term chart of the same 5 year real interest rate last Friday May 1st and a similar very short term 5 minute minute chart of the SPX index

Down during the last week in May into the last Friday in May, But as soon as the European markets closed between 11-12:30 AM Eastern time this Friday, the foreign selling dried up and the computer algos kicked in and kept buying in a less liquid market. Why? Because of this chart. The intraday rally of 8-10BPS in 5-year real interest rates from the overnight session and from the morning when the PCE data was released along with other weaker than expected manufacturing and consumer data.


So the answer I have to the question of “what’s going on” in the equity markets? That’s it. The market is still wrestling with what the Fed and the economy will do. But the move up the second half of Friday May 31st that shocked many, was quite typical for a market anticipating a soft landing in the economy and a normal seasonally strong summer equity rally that usually begins when? Yes, as we previously have discussed, the last Friday in May.

And yes investors, those summer rallies even include the bubble bursting year of 2000, when hopes for a 2h2000 soft landing, were eventually dashed in 4q2000 through the 1q2001, but not before a strong rally into mid-August that few investors recall as most were shell shocked but the collapse in most technology names.
For investors or retirees who have been fearful that the markets might experience a 1970’s lost decade, or who feel anxious or paralyzed, so far, financial storms have not presented themselves in the overall markets and at the index level in 2024 and that’s a great thing.

However, even so, if you are uncomfortable with wider range of possible equity outcomes, the Oak Harvest team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorber “insurance” for a stock portfolio. Information on this exciting new strategy of ours can be found at

Viewers, for those of you who made it this far, I want to give a shout out to the entire OHFG team as last week, USA TODAY, ranked us as one of the Best Financial Advisory Firms 2024. The award is given to top registered investment advisory (RIA) firms in the United States based on two key criteria:
• Recommendations from individuals from among 25,000 financial advisors, clients, and industry experts
• Growth in Assets under Management (AUM) over 12 months and 5-years, respectively
I personally am looking forward to helping us move up this list over the coming years by taking care of our current and future client base. From the whole team here, thank you and have a great weekend.


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