Indeed, There is a Trump Put in Stocks

Market Commentary and Outlook

Recent market activity has reignited discussion among market observers about the existence of a "Trump put." While some argue it does not exist in the traditional sense, others contend that it is effectively being applied to alternative asset classes such as interest rates and crude oil. This view resonates humorously with me, especially considering my industry roots—having been hired, trained, and mentored by the architect of the "Greenspan put." It is, therefore, somewhat ironic that the S&P 500 rebounded around the 5000 level, coinciding with President Trump announcing a temporary hold on tariffs. So indeed the Trump put existed in equities, it was just struck lower than people originally thought.

Drivers Behind the Recent Market Rebound:

We believe the following factors contributed to the sharp and rapid rebound in equity markets:

1. A 90-day suspension of proposed trade tariffs.

2. Signals from China expressing a willingness to engage in trade negotiations with the U.S.

3. Conclusion of the corporate buyback blackout period.

4. Trend-following commodity trading advisors (CTA) are re-entering the market.

   
   

5. Continued retail interest in SPX ETFs, with firms like Vanguard continuing to influence price action. See my Barrons interview where I argued that there is actually a Vanguard Put. Barron’s article.

   
   

6. President Trump publicly stated he would not dismiss Federal Reserve Chair Jerome Powell, thereby reducing a key source of uncertainty in the market.

   
   

ETF Outlook and Market Range Expectations:

Our annual "10 ETFs for 2025" report, published on November 25th, was candidly the least constructive edition we have produced in over a decade of publishing this series. As emphasized in our recent interview with Barron’s, we had forecasted a meaningful market correction—an outlook that ultimately proved accurate.

Looking ahead, we expect the market to remain range-bound until the following developments occur:

1. Clearer data on whether the economy is genuinely slowing or simply navigating a period of stagflation.

2. Meaningful progress on the U.S.–China trade negotiations, thereby significantly stabilizing supply chain stability.

3. Stabilization in earnings revision breadth.

4. A more dovish shift in Federal Reserve policy.

We maintain the view that the U.S. economy is undergoing stagflation—characterized by slowing growth alongside persistent inflation.

Labor Market and Consumer Behavior

Last Friday’s Non-Farm Payroll (NFP) report confirmed labor market resilience. However, this strength is counterbalanced by weakening indicators, including consumer sentiment data, jobless claims, and JOLTS figures, all suggesting a gradual softening in labor market conditions.

We’ve consistently emphasized that rising unemployment typically marks the tipping point for broader economic deterioration, given that consumer spending constitutes approximately 70% of U.S. GDP. Anecdotally, retail activity remains robust—recent visits with the Davi teenage girls to local malls and restaurants in New York City revealed crowded venues. We believe the Federal Reserve will only initiate rate cuts following two or three materially weak labor reports.

Valuation and Recession Odds

We estimate that recession probabilities have declined from their peak of 50–60% to approximately 35–40%. Nevertheless, the equity market remains richly valued—despite strong earnings from the "Magnificent Seven." Our portfolio contain a very healthy amount of international stocks though this remains a contrarian stance.

Factor Preferences and Fixed Income Strategy

We continue to favor the High Quality stocks. In a late-cycle environment, it is prudent to focus on companies with:

• Lower leverage

• Strong operational efficiency

• Stable earnings and margins

Such companies are better positioned to navigate economic deceleration, especially when the Federal Reserve maintains a restrictive stance.

Fixed income is becoming an increasingly important component of our strategy. Our recently rebalanced  Enhanced Income Model now offers a 6.1% dividend yield and has a nearly five-year track record of GIPS-compliant live performance. Please contact us for additional details. Factsheet here.

Key Watchpoints

• AI CapEx Caution: Several of the “Magnificent Seven” companies have curtailed their capital expenditures related to artificial intelligence. This reflects growing caution at the corporate level. CFOs are unlikely to allocate aggressively toward riskier projects amid rising concerns about a potential recession.

  
  

• 10-Year Treasury Yield: U.S. interest rates continue to serve as the primary benchmark for cross-asset valuation. We view the 4.5% level on the 10-year Treasury yield as a critical threshold. For now, this risk signal remains contained.

  
  

• Corporate Earnings Strength: Earnings for the current season have exceeded reduced expectations, with a beat rate of approximately 8%. This comes despite Q1 EPS estimates having been revised down by more than 5% prior to the reporting period. If this earnings momentum persists, it could provide a continued tailwind for equities.

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