2025 Macro Outlook and Projections…

January 7th, 2025

It is with great misgivings that I enter into this annual test of predicting the unknown. It is because in making these projections I have allowed myself to be pulled into the MAGA vortex if only briefly. I see two stages for the Trump Presidency, the implementation stage which should be successful as the Republicans totally control government for the next two years. Tax cuts and deregulation will happen. This along with the Fat Guy side show of Musk along with the AI Hyper-Scalers will be another early push for market prices regardless of interest rates or value of the dollar. The problems for the markets will be, in what still is a 70 percent consumer economy, economic growth and earnings will have a difficult time in trying to follow the hype.

As a preface to our projections here are some extraneous factors on which we are focusing. First, there is a big cross current at the beginning of the year where the Christmas rally didn’t happen. At the same time, as illustrated by January 6th market action, there is a lot of chatter around the idea of a big MAGA generated rally in stocks during the first half of the year. With the principals involved, it no doubt will be easier to move the stock market up than to move the economy up. With that said as you pour through the material in this analysis, keep in mind that comparing the underlying economy to market prices will be a key ingredient to determining when to abandon the happy talk crowd. In making these projections we are using liquidity inputs levels that would be needed to sustain the market hype. If they do not materialize, watch out below. We talk about this at length in this presentation.

Moving on to 2025 Projections. This may be the “Year of the Contrarian”. In the early years of my trading, 1970 to 1980, I got the nickname “Trading Bear” for my love of the Contrarian trade. In my middle years 1980 to 2000, my concentration was in the development of an early Machine Learning AI type trading system, In 2008 I started this website due to my belief that we were moving into a time when the fundamental macro picture was going to dominate the markets. Our handling of the 2008 – 2009 crash drew in a lot of followers (in our website archives you can look at daily comments for the period), we were not afraid to sell when needed. A lot of the current trading guru’s that dominate the air-waves however, were trained on the 2011 to 2021 Bernanke “funny money” phenomenon. It is true that being a contrarian did not work so well when the FED was the dominant factor. We have witnessed how these new gurus had a lot of difficulty in the October 2022 to December 2024 mini bull move, they fought the tape for the first twenty months and finally got on board in May 2024 for the last eight months. Now they are wildly bullish and, in a quandary, but they probably do have a short-term backstop coming up in Washington in late January.

To start the 2025 projections, no one knows what is going to happen after Trump takes office. Will he do nothing, was all of his rhetoric just to get the white evangelical vote? Probably not, but interestingly many forecasters are projecting a mild upward 2025 with AI still at the core, I would not be too sure about that.

2025 is more likely in my view to be marked by extreme volatility in both directions. One has to keep in mind that Trump is both a supreme marketer and supreme manipulator. And his campaign talk about doing tariffs, corporate tax cuts, deregulating and reducing deficits are at the core contrary to each other. Trump’s government efficiency moves, will I think, be the first to quickly fade, by April 2025 they will probably be lost in the Great Disruption.

Some more points on 2025 analysis; 1) cycles analysis is still involved but the forces being unleashed will tend to blot out much of the well-known cycle work; 2) I look for AI hype to be a background issue in 2025, not the big thing as reflected in 2024; 3) common sense and intuition will probably be big factors in backing up the macro-economic scene; and 4) technical market signals will play a big role in handling the volatility. The Trend will not be your friend in 2025. You will have to anticipate and move early as the boat on which all are riding is not balanced.

And of course other factors will be involved, like, there is the goal of assimilating Canada, taking over the Panama Canal, and buying Greenland. Couple this with rounding up millions of immigrants who are illegal because Congress never put together a program to allow legal immigration for much needed workers as the US moves toward a net zero birth/death ratio.

All of this within an envelope that Trump is no stranger to big plans, his history is one of doing a lot of stuff on other people’s backs, they pay the price, and he takes the spoils until he loses it all on the next project. So be prepared.

For us this means one needs a baseline from which to navigate. We are using the same basic Macro Model that we have used in years past. The core components are:

  1. Aggregate Macro Input/Demand Creation Factors.
    • A) GDP output
    • B) Money Supply
    • C) Fed Balance Sheet
    • D) Fiscal deficit/credit figures
    • E) Consumer Confidence
  2. Output Multiplier Factors
  3. Macro Price Indexes with Projections
    • A) S&P Prices (SPX)
    • B) Nasdaq 100 Prices (NDX)
    • C) Bond Prices (TLT)
    • D) Gold Prices (GLD)
    • E) Commodity Prices (CRB)

A core concept for our forecast revolves around the liquidity that the economy generates and where that liquidity goes, i.e. what portion go to stocks, bonds, gold, or commodities. The data utilized goes back to 2005, before the Housing Boom and the Bernanke 2009-2011 rescue.

Next step in the analysis is the Liquidity Index and individual components of it. All five individual markets use the same Liquidity Index which we label SMIDX-3.

A key factor in analyzing prior data and forecasting is the variable output multiplier used for each market. It accounts for the unexplained and is probably a function of animal spirits, i.e. consumer confidence in a 70 percent consumer economy, investor euphoria/despair, and political themes. It sometimes trends for months, and when it turns it tends to be decisive.

  1. A key element is monitoring all of the model’s input streams, outlined above, in real time. The Federal Reserve through its FRED website is an important source along with GDPNOW. How inputs and outputs are correlating to forecast values is the bottom line. As 2025 evolves we will be monitoring and presenting how the actual market inputs and outputs are correlating to projections on a monthly basis. One important site is the Fed’s “Smoothed U.S. Recession Probabilities”, its value is low at the moment around 1.5, however values over 10.0 should not be ignored.

Any unexplained values using the monitored and adjusted inputs and outputs are where the multiplier enters the analysis. I.e. where is the price projection index compared to forecast, is it being modified vs the projection by an input value, or an output value or is the multiplier changing.

In the next section we will share the charts for 1) the input demand values, the Multiplier values and 3) the output price index values. The data period covered is for a 20-year period, actual data through end of 2024 and Projections for 2025. With each chart will be comments as to important points within the 2025 projections.

Charts for Aggregate Macro Input/Demand Creation Factors.

Note, M2 and the Fed Balance Sheet both peaked back in April 2022. The total Fiscal figures peaked in December 2020. And we project that total aggregate demand (SMIDX) and GDP will peak in March 2025 and then move lower. Additionally, we look for M-2 to be relatively flat.

The next two charts are presented to allow viewing above info in more detail.

Charts for Output Multiplier Factors

The multiplier is the Wild Card in our analysis. It involves a mix of real numbers in terms of actual market moves vs actual macro influences, and a dose of intuition as to when trend changes in the multiplier might occur.

Note on this chart the SPX multiplier crossed above the 12-month average in April of 2021 and has steadily moved higher. The model projects that it will cross under the 12-month average in April or May 2025.

Note on this chart for the Nasdaq 100, that the NDX multiplier initially crossed over the 12-month average in February 2021, then had some whiplash between May 2022 and October 2022, before moving steadily higher. The model projects the 2025 high in March, and then crossing under the 12-month average in May 2025.

Note the bond price multiplier has much different pattern than stocks, especially since July 2016 when it hit its peak for this 20-year period. While there have been a number of attempts to hold prices above the 12-month average since the plunge of the multiplier into April 2021, the now model projects a powerful upthrust starting in bond prices in April 2025.

The CRB commodities index has been a rather lackluster area since the 2009 market crash, slowly working lower in spite of Arab attempts to push oil prices higher. It did finally reach a bottom in November 2020 and in spite of all the talk about inflation since, most of the inflation politicians have been talking about has been consumer inflation driven by monopolistic practices. This due to big corporations taking advantage of government pandemic money. So much for the S&P 500 companies working for the common good. We would not be surprised to see the CRB multiplier move decisively above the 12-month average in the fall of 2025, maybe around October as things get out of control due to the FED reactions to plummeting economic activity.

Gold could be a strange animal in 2025. It could be the one anchor within all the turmoil, although it will move around a lot also. It likely will be involved in a March-September bust that could take bitcoin with it, and a late year recovery as the one safe place to hide.

Macro Price Indexes with Projections

While this section will show Price Index charts we will limit our analysis to converting the Price Indexes to projected Price traded price ranges for 2025.

The projected 2025 SPX price range is: 7183 to 3170. High first.

The projected 2025 NDX price range is: 25,382 to 11,203. High first.

The projected 2025 Bond (TLT) price range is: 85.91 to 169.68. Low first.

The projected 2025 CRB Commodity price range is: 156.16 to 398.69. Low first.

The projected 2025 XAUUSD Gold price range is: 1634 to 4149. Low in middle of year, High last.

In closing, in my view, a few things to keep in mind, “Out of the Blue” factors will dominate market movements. Algo’s and strict economic models will find the markets a little inhospitable. And:

  1. There will more than likely be a collapse in the stock market in 2025, timing up in the air, but there.
  2. There will most likely be a huge rally in Bond prices as stocks collapse.
  3. Commodity prices should be strong in the last half of the year.
  4. Gold will do what gold does.

And I am still an observer of the Long Tail, the Tail that goes back to the 1930’s Depression, the 1940’s hyper investment to win WWII, the 1950-60’s utilization of the War investment to move into a consumer economy, the 1970’s inflation that followed, then the 1980-2005 move into Reagan Supply Side economics to try and save the Happy story for the wealthy through Trickle Down, then the 2011 to 2021 Bernanke Funny money story to try another save for the Happy story. All this evolved into the blue-collar Angry People movement that reflected the fact that Trickle Down did not work unless you were a Fat Cat. This led to the MAGA story of “Make America Great Again” which played better than the Biden/Harris story of “Everything is OK” for the people on the bottom. Now we are entering the period when the MAGA solution will be in question.

And just one more thing, the great Cycle trader Larry Williams has outlined his 2025 projections. He mentions his big thinker view, “The world is expansive, we have more people, more businesses, and more and better ideas. Economics are Evolutionary. The progress of man may be interrupted, but in the long term, things get better.” Interestingly Williams uses the years 1984 to date of stock market prices to prove his point. Those are the years of trickle down and increasing inequality as all eyes are focused on wealth. To me, it may be important to keep in mind that MAGA economics has never been seen before, at least since 1933.

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DISCLOSURES 

This commentary is being provided to you by individual personnel of Eureka-Perspectives.com and is provided as general information only and should not be taken as investment advice. Any action that you take as a result of information contained in this document is ultimately your responsibility. Eureka-Perspectives.com will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results. 

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