Don’t ‘buy the dip’. Even after the recent pullback, equity valuations remain expensive. US double digit earnings growth expectations for 2025 look vulnerable. If 2025 delivers flat earnings, and valuations normalise, the S&P 500 could fall a further 25%.
Soft data (consumer sentiment, business intentions, survey results) have all rapidly deteriorated in the US. Hard data, being more consequential, remains on firmer footing. One cannot rule out a US recession having commenced in March/April, but until hard data emerges to corroborate it, I wouldn’t ‘bet the house on it’.
The US economy, particularly the labour market, was not strong entering 2025. Weaker economies are vulnerable to shocks. Trump policies, even though he campaigned on them, are providing a shock. This quarterly attenuates market noise, exploring the structural drivers of the post-GFC business cycle.
We then zoom in on real time business cycle indicators. Our caution at the end of 2024, and commencing 2025, is no longer out of consensus.