2025 Mid-Year Baseline…Jul. 7, 2025

July 7th, 2025

I will start this update by pulling a paragraph from our earlier January 7th Outlook and Projections.

“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.”

Due to the fact that Administration policy that is being put in place during the first half of the year will take months to play out we are inserting factors affecting projections through first half of 2026.

In my opinion, probably the most important take on the next twelve months is that economics will not matter much until the apex point is reached whereupon all that matters will be economics. The two economic factors that dominate the background picture early on are 1) the declining Dollar, it is getting hit from all directions and 2) increasing government deficits. In the short run, i.e. next 12 months these two factors will add liquidity to market direction, especially stocks but it is not the kind of market demand on which to build a strong future.

Some more points on my 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 continue to be a background issue in 2025 especially the Arab buildout that is being encouraged by Trump. 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.”

I see the Big Question for interacting with the economy to be timing.

In what order will things unfold now that administration policies are in place.

People talk about higher interest rates due to increasing debt.
People talk about lower interest rates due to a weakening consumer and a slowing economy.
People talk about higher interest rates due to tariff inflation.
People talk about increasing growth due to lower corporate taxes and deregulation.
People talk about lower growth due to stagnating trade/tariff situation.

And those five things are just a start. Most likely all of these will occur, one just needs to get the order and length of time nailed.

This analysis will not be a forecast or projection, but a baseline with which to compare actual values. In general, it will follow the pattern of presentation used for the earlier January 7^th projections. Those projections were adjusted and pushed forward about six months due to all the chaos that we all have seen out of Washington since January 20th..

The Baseline forecasts are for the period July 1, 2025 to June 30, 2026.

Section 1____________________________________Aggregate Demand_________________________________
First, let’s take a look at the Aggregate Macro Input/Demand Factors and the Index that evolves out of those numbers. I like to call this the Liquidity Index.

GDP is expected to increase at a 2.5 % rate in third and fourth quarter 2025 as capacity is built out for the Big Beautiful Economy. First and second quarter 2026 will probably see significant declines in GDP with the second quarter 2026 taking out the 2020 lows as repercussions of debt and trade policy show their face.

The M-2 Money supply baseline is expected to continue at the same rate of increase as has been in place since January 2024.

The FED Balance Sheet rundown is expected to continue at the same rate seen in 2024. I expect this will end sometime in the first quarter 2026 when declining GDP instills FED fear of a recession and the FED is forced to buy debt.

Additionally, in terms of Interest Rates I see economic weakness in terms of employment and consumer demand to start FED interest rate declines from current 4.5 % level to eventually 2.5 % level a year from now..

I expect that Fiscal Deficits will start increasing at a rate double Fiscal 2024-25 rate in third quarter 2025 and continue increasing at that rate.

I expect Consumer Confidence to improve through this coming summer and into the early fall 2025 whereupon the aggregate economic numbers will start to show the stench inside the economy.

Here is the Chart of the Aggregate Demand Index (Liquidity) that I use, Chart XX-6. The number are actual for period 2005 to June 30, 2025 and Forecast Baseline for July 1, 2025 to June 30, 2026. Some things in this chart that jump out at me are:

The Covid Pandemic Rescue is the biggest thing to have boosted liquidity over the past 20 years. See the bump up in our aggregate demand index between February 2020 and the peak in October 2021. The Bernanke QE period starting in 2011 does not come close.
The period when the FED took on the inflation generated by the Pandemic rescue ran from November 2021 to December 2022 and served to dampen the demand index considerably.
In January 2023 various aspects of Bidenomics policy turned demand back up and that effect is still in place.
All the super bulls on the economy may want to reflect on the fact that even though the demand Index has been rising since January 2023, it is not coming close to the 2020 highs.
I expect various Administration, Treasury, and FED actions, as outlined in comments above on aggregate demand, to try to keep demand on an upward swing through the next twelve months.

Section 2 _______________________________Individual Market Multipliers_________________________________
Individual Market Multiplier Indexe calculation.

Next is the all-Important Multiplier Index which we calculate monthly, and at market turn areas, sometimes on a minute-by-minute basis in our Trading Market Model (see more later on that aspect). Essentially this calculation is the difference in market values compared to the underlying aggregate demand. This is done individually for stocks, bonds, commodities, and gold. This is the Index (what may be termed Liquidity) shown above. Unless you are a behavioral psychologist the best way to handle this data is with a combination of trend and over and under statistics. This is what I like to call “Animal Spirits”. President Trump has increased the analytic value of this kind of data by magnitudes as current economics have little relation to anything seen in an Economics or market cycle textbook.

Back in our January 7th 2025 projection piece we said the following:

“A core concept for our forecast revolves around the liquidity that the economy generates plus what the government adds from the Treasury and the FED. And then where that liquidity goes, i.e. what portion goes to stocks, bonds, gold, or commodities. The data utilized goes back to 2005, before the Housing Boom and the Bernanke 2009-2011 rescue.”

The Following charts show the history of the Multiplier Index for each market 2005 through June 2025 and the forecast Multiplier for the next 12 months.

For me, the Multiplier Index accounts for the unexplained and is probably a function of animal spirits. We live in a 70 percent consumer economy, where consumer confidence combined with Wall Street cheer leading lead to investor euphoria and or despair. Political themes these days count for some of the force. These animal spirits can sometimes trend for months, and when they turn it tends to be decisive.

A key element in utilizing these concepts is the monitoring all of the model’s input streams, outlined above. 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.

S&P Multiplier Index chart:

Over the past 20 years the S&P and Nasdaq 100 have seen two major waves of a rising Multiplier, the first out of the 2008 Crash, pushed by Bernanke’s QE, and the second out of the 2020 Covid Pandemic low, fueled by government borrowing. The little blip down in April 2025 and quick recovery shows the power of it at this point. I anticipate that the current second wave will climax in a spate of AI, tax cut and deregulation exuberance that cannot be sustained. From that I would not be surprised to see the Multiplier test the 2010 lows.

NDX (Nasdaq 100) Multiplier Index chart:

TLT (Bond) Multiplier Index chart:

The Bond Multiplier seems to best reflect overall condition of the country at any particular time. Some past highs in this Multiplier occurred in January 2008, an Election year and not long before the 2008 market crash, and secondly in July 2016 during an Election year that brought about big change with the first Trump term. That July 2016 change ushered in a nine year decline in Bonds. We now see Bonds making a strong attempt at a bottom but on the anticipated rally in the Multiplier will probably only reach about half of the 2016 high.

CRB (Commodities) Multiplier Index Chart:

Commodities are unique, they come closest to being a classic supply/demand market. As such the Multiplier tends to have less effect, certainly less than stocks which are almost pure sentiment, real or hyped. In 2008 we did see this Multiplier drop precipitately and hover at a rather low level for 17 years. I see the 2020 lows as the bottom and look for this Multiplier in the next five years to move back to levels seen in 2007.

GLD (Gold) Multiplier Index Chart:

Gold is pure Macro. Its Multiplier has come out of the 2020 recent bottom and should maintain an upward trend until the current chaos is settled, at least for the next five years. Albeit with some volatility.

Section 3 ___________Market Prices – Actual and Model based Forecast Baseline___________________

Table of Monthly average Prices (beginning of month dates shown), Recent actual history, January 2025 to June 2025, plus Model Baseline Forecasts for July 2025 through June 2026.

Section 4_______________________________Visualizing Price Patterns_________________________________

Visualizing Price patterns via price indexes, January 2005 through Model numbers through June 2026.

SPX Price Index Chart:

Take a look at the Multiplier chart in the previous section, we have seen stocks in a bubble for some time. I see the end of that bubble coming in the next year, and a subsequent revisiting of levels seen prior to 2016.

NDX Price Index Chart:

TLT Price Index Chart:

Backstory here is Bonds made their lows in the 2023-2025 period and the government will manipulate activity to try to keep rates under control.

CRB Price Index Chart:

The main backstory here in my opinion is that going forward into maybe the 2030’s, commodity inflation is ready to ramp up from the 2020 lows.

Gold Price Chart:

The backstory here with GOLD is that the turmoil that has been injected into this market can only point one way, up.

Section 5___________________Monitoring Short-Term Multiplier Action________________________________
In our blog on a weekly basis and occasionally a daily basis we post the current Stock Market Multiplier based on our trading model, This model uses the same methodology as the Macro model results shown here but instead of Macro Demand factors that are available at best on a monthly basis, GDP, Money Supply, FED Balance Sheet, Fiscal Deficit, and Consumer confidence, it follows demand factors that trade daily and provide a sense of market demand exuberance, i.e. the Dollar, Interest rates, Yield Curve, Oil and Gold.

Section 6__________________________In Summary_____________________________________________________

It might just be coincidence, or maybe good Karama, but if things work out according to the model, we could see all the stupid stuff that has pushed the stock market into almost a permanent bubble along with moving money to the top, be swept away. This stupid stuff started with the supply side theory in the 1980’s, the Bernanke QE stuff in 2011, and now a regeneration of supply side theory coupled with high tariffs in 2025.