February 28, 2025 – The post-election market buzz has crashed, and Cris Sheridan and Chris Puplava unpack the chaos on Financial Sense’s Smart Macro. From Trump’s tariff flip-flops sparking CEO paralysis to a shocking 0.5% drop in consumer spending—the biggest since 2021—this convo dives deep. Sentiment’s at Great Financial Crisis lows, yet cash is king as markets teeter. Will tariffs tank jobs or spark a rebound? Could stagflation loom with sticky inflation and a GDP scare? With insider takes from Alcoa to Citadel, this is your front-row seat to a market unraveling—tune in for the full, unfiltered breakdown!
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Transcript
Cris Sheridan:
Well, the post-election market honeymoon is over. That's a piece that we just posted and sent out to clients of Financial Sense Wealth Management. We're going to speak with our chief investment officer here today on our Smart Macro segment, Chris Puplava. So, Chris, this piece, you highlight some of the market turbulence that we're seeing currently, especially this week. What is the big picture and what are you telling clients currently?
Chris Puplava:
Well, Cris, we've had a real setback since the elections and that's really the title of the article that we sent to our clients: "Post-Election Market Honeymoon Is Over." And a lot of this has to do with, you know, the euphoric rise that we saw in business and consumer sentiment once Trump won. The idea being that he was going to basically, we're going to remove the tax uncertainty, was as Trump was likely because that was a big question mark for this year: Would we have an extension of the Trump tax cuts or would those be reversed? And with Trump in the White House, that, you know, at least the tax uncertainty was removed. And then the idea being that we would see less and less regulation red tape, which is obviously pro, you know, pro-business and could be deflationary. You know, the less cost that businesses are spending on regulation, the better profit margins they have and the less overall prices they have to charge to maintain those margins. So overall it would be real business, would be beneficial for the consumer, businesses, and the economy as a whole. However, what we have seen since Trump has taken office is rather than that uncertainty being removed, it was really only just switched from tax uncertainty to tariff uncertainty. And just even this week, Cris, I was looking at with my Bloomberg, I have hot headlines. These are, you know, one-line news article headlines that hit the wires. And on Wednesday it was "Trump to Extend Tax or Tariff Deadline for Mexico and Canada to April 4th." And then what we saw was Arabs or April 2nd. And then literally within hours his aide said, "No, no, no, we plan to maintain our initial deadline of early March." So there's so much flip-flopping where as a business, how do you manage inventory not knowing whether there's going to be, you know, tariffs or not that would impact your, your pricing for your products that you sell basically because of your cost of goods? So it's been a real dilemma for a lot of CEOs. And I think when you look at what CEOs are thinking, I really like what I heard from the CEO of Alcoa who was speaking at a BMO Metals and Mining Conference. I think it really summed it up. And he put it this way. And I think it will really kind of logically make sense of why, you know, blanket tariff policies rather than, you know, the reciprocal policy doesn't make sense that Trump initially floated. He said, quote, "Currently the US is short 4 million metric tons on an annual basis of aluminum. We import. The US imports that from Canada largely, which is 2.8 million metric tons. Of those 4 million metric tons, the other 1.2 million metric tons come from different parts of the world. So our view is that currently those two tariffs, meaning the 25% on aluminum, plus the 10% on energy and critical minerals, which stack to a 35% net tariff coming from Canada, we think that's a particularly bad outcome for a number of reasons, and I'll highlight some of them. But first of all, if there is a differential tariff between Canada and the rest of the world, that will incent or motivate metal to go from Canada into Europe and potentially pull metal from the rest of the world, Middle East, and India into the US. You will literally see ships passing each other that have the exact same products coming from Europe and coming into Canada. It really makes very little sense." And then he further goes on to say, "I don't have an updated number for a 35% tariff, but we have a view that a 25% tariff will destroy about 20,000 direct US aluminum industry jobs and could result in 80,000 indirect jobs being eliminated in the United States. So we view it's bad for the United States." So you can see, you know, just coming from him, the potential loss of jobs, the increased cost that this would result, because, you know, Trump is using tariffs to defend American businesses while, you know, the CEO of Alcoa, one of the largest aluminum producers in the world, based on his views and insights, says this will lead to job losses. And then what we also hear, Cris, from other CEOs, from Citadel CEO Ken Griffin, he said, this is a, quote, "difficult time to invest." A semiconductor CEO said, "Everybody's paralyzed." And then you had Franklin Templeton CEO say, "I'm sorry, I can't be particularly positive." And then lastly, we saw NASDAQ Private Market CEO saying, "The chaos that is reigning right now is causing everyone to sit on their hands." That's the problem, Cris. When you look at businesses, without having tax certainty, they were holding on capital expenditures without knowing what their taxes would be, which obviously affects their profit margins. And now it's not taxes, it's tariffs. Tariffs are impacting the cost of any good that you sell. And so given this heightened uncertainty, I think we're going to see a business-led retrenchment which this fear has already been building in. On top of that, Cris, today we just got consumer spending coming from the personal or the U.S. Personal Consumption Expenditures report out of the Bureau of Economic Analysis. And for January it showed real consumer spending contracted by 0.5%. That was the biggest monthly contraction in spending since early 2021. So that was kind of a shot across the bow. At the same time, what we've seen is due to the fears of tariffs, we've seen a spike in US imports, basically people or businesses acquiring their inventory ahead of time before tariffs get implemented and those costs go skyrocketing higher. What that is doing is it's really pushing the trade deficit in the United States to record levels. So as of right now, when you look at GDP Now trackers, basically those that are estimating gross domestic product, the one from the Atlanta Fed has gone from initially a 4% read for growth in the first quarter to now more than a 1% contraction of growth. So this would be the first contraction in economic growth since the growth scare of early 2022. Back in 2022 we were worried about a recession and at the same time the dollar was surging and we saw a lot of capital flee out of the United States due to the strong dollar. Basically what we saw was forced selling of Treasuries due to the strong dollar to basically prop up their own home currency. So it was very volatile and disruptive to both the stock market and the bond market. So that's one of the things that is this real shift in sentiment from just over a month ago, after the initial kind of euphoria after Trump's inauguration. His policies are all over the map. His communication is not consistent. You just don't know where the wind's going to blow with where tariffs land. And that is creating massive, massive global uncertainty. And it's definitely causing a lot of people to hit the sell button. And I think that's what we've seen over the last two weeks here.
Cris Sheridan:
Now you show two charts in your article looking at investor sentiment and where we've seen sentiment track relative to the ups and downs of the S&P 500 over many market cycles. How would you characterize where the market is currently in light of the sentiment readings you're looking at?
Chris Puplava:
Well, one of the charts that we gave was the American Association of Individual Investors, or the AAII survey. And it asks some real simple questions: Are you bullish or bearish or neutral? And basically they tabulate that data to calculate the percent that are bearish, percent are bullish. And what I did is I looked at the percent that are bullish, less the percent that are bearish. So just to look at that spread between optimism and pessimism, and it was at a negative 41%. That is on par with the lows that we saw back in 2022. And to go beyond that, to get to see even worse levels, you would literally have to go to the March 2009 Great Financial Crisis bottom to see sentiment more pessimistic. I mean, I highlight a couple of areas. I mean, we are more pessimistic now than when the stock market collapsed 35% in a month during COVID of 2020. We had a mini bear market in the fourth quarter of 2018 as Powell was raising rates and junk bonds were running into trouble; we're more pessimistic than then. And looking at even the tech bubble collapse, the bottom, which was in 2003, we're more bearish than even then. We're more bearish than the 1998 Asian currency collapse or crisis and collapse of Long-Term Capital Management. I mean, these are major instances of significant market turmoil and decline. And yet we hadn't seen investors, retail investors, this pessimistic or bearish. There's also the CNN Fear and Greed Index in a reading of 18 that puts us on par with the lowest level since last summer. And in the region that we've typically seen some kind of a market rally. So our view is that we're really oversold. Near-term sentiment is getting bearish. But my conviction, Cris, is I don't think that this is the bottom. I think what we're probably going to do and see is an oversold rally going into next week that could carry into, you know, the first part of March. But I think we've got another leg lower because I don't think there's been a washout in actual positioning. So there's, you know, here's what I'm saying. But there's also, you know, the other side of what are you actually doing with your money. And I don't think that consumer or retail investors or professional investors have actually capitulated. And one of the ways I'm looking at that to measure that is in the North American Association of Individual Managers. So think of that like our firm, you know, registered investment advisors, pension investors, and the like, and endowment funds. They haven't capitulated and they're more, I would say, near the 75th to higher percentile. They're not at readings that typically mark the bottom. So I don't think, Cris, that we've seen a real shift in money because a lot of investors, it just comes as a shock. Right? And there's so much volatility and everyone was so bullish on the outlook, including ourselves. But you know, this is a self-inflicted wound. You know, absent this tariff uncertainty, I do think you would have unlocked business might. I think you would have seen more capital expenditures by businesses with the reduced tax uncertainty. But now we've just switched uncertainties and this is pain of our making. And I think it's really kind of taken some people some time to say, look, we were just bullish. Are we really going to shift just yet? And I think that delay in really just the speed of how much things have dramatically shifted, that I don't think we've really seen people do that with their wallets just yet. So that's why I think while we'll get an oversold bounce, I don't think we're over with this because again, I don't think the uncertainty regarding Trump and his tariffs have been completely resolved as well.
Cris Sheridan:
Yeah, and just to clarify really quickly, you said that we were bullish on the outlook. That's regarding the economic outlook, because a lot of our leading indicators were showing that the manufacturing sector would pick up as we saw, and those correctly flagged the strength in the manufacturing sector. But on the market outlook, as you told us last month, and then in December, we had become increasingly more neutral and defensive by raising cash, selling some of our overpriced tech stocks, and having much more of a neutral allocation to the stock market. So yes, bullish on the outlook for the economy, but not necessarily for the markets as of late last year.
Chris Puplava:
That's correct. I mean, we thought there'd be tougher going this year. Number one, you had, you know, two really strong back-to-back years. It'd be really hard to see a significant expansion in price multiples, particularly with the Fed still shrinking its balance sheet. And it would be much more difficult where also too you had the Fed's reverse repo facility inject nearly $2.8 trillion over the last several years that's now been spent. So we thought this would be more of a return to normal, still a positive year for the market, but a more normal year where you're not going to see 20% plus returns in subdued volatility. You'd see more high single digits in greater volatility. We still expect a bullish year for the market. We think the market will finish positive on the year. But what has really changed, Cris, is our visibility into what that path looks like. We thought it would be much more of a, or at least a less volatile period, but with all the uncertainty regarding tariffs, it's really clouding that outlook. But we don't see a recession on the horizon. And usually you kind of need to see a recession or a financial crisis to really look for a significant drop in the stock market. And given we don't really see either at this moment, that's why we still think the path of least resistance between now and the end of the year is up. It's just that path is, you know, that path has really become murky of late.
Cris Sheridan:
Yeah. So as you discussed, there's a lot of uncertainty over tariffs. Many business leaders and CEOs were already saying tariffs are a bad idea, but now we have a lot of uncertainty over the implementation of those tariffs as well. So there's, there's two things going on there. You may not like tariffs and then there's the question of, well, how are they going to be implemented and when? So there's a lot of things, things coming together here that are creating more uncertainty for investors for the stock market. But then there's also the job cuts that we're seeing from DOGE. And according to the data that you discussed in this client letter, again, we're seeing some big layoffs take place, primarily in Washington, D.C. That's where we're seeing a lot of jobless claims right now. So it's concentrated largely to dispute D.C., but this does also have some ripple effects, as you discussed. Can you explain that for our audience?
Chris Puplava:
Well, there's some estimates that for every government employee, there's two contractors. So the consensus estimates are roughly around 300,000 jobs that will be lost due to DOGE's efficiency measures. And if you look at that 2-to-1 ratio of contractors to federal employees, well, that could be an additional 600,000. So now we're talking 900,000. That's literally almost a million jobs that could be potentially lost through trying to get rid of some government waste and improve efficiency. So that is great news long-term, but that is essentially near-term pain for long-term gain. So we could see a hit to the economy. And as I mentioned, with the consumer spending starting to slow, with our trade deficit blowing out and the manufacturing sector starting to potentially slow due to business uncertainty, we are setting ourselves up for a negative print for the first quarter's GDP estimate. When you look at the Atlanta Fed's Nowcast, it's negative. So we are dealing with a bit of a growth scare. At the same time, inflation remains sticky. So, you know, persistently high or sticky inflation at the same time that we're having decelerating growth. I mean, that's virtually the definition of stagflation: high inflation and subpar growth. So that is definitely not a welcome environment for the stock market. I mean, that defined the 1970s, which was obviously a very difficult period for the stock market. So we're not on solid footing, as I mentioned, because of these reasons. But I do think that over the course of the next several months, we're going to find out what deals Trump is able to negotiate and finalize and finally have something on the books. It's, you know, you can't play a game when you don't know what the rules are. Those rules are constantly changing. I mean, you don't know where to go, where to be, when you can swing, when you can sit. I mean, it's very difficult for anyone to do anything. But my belief is, you know, over the next month or two, we'll finally figure out what's going to happen with Canada, what's going to happen with Mexico, where Trump ends up landing with European and Chinese tariffs. And once everyone knows what the rules are now, you can basically remove some of that uncertainty. As a business, you can have a better understanding of what your costs will be and adjust accordingly. And you know, even as a country, you'll be able to know what the US is going to do to determine what you will do in response. So once we finally get a settling out of all these tariff wars and uncertainty, that's when I think the ground will be set for more certainty, less uncertainty, and less volatility. And I think we'll start to advance from there. It's just between now and that point where we get through this, you know, difficult time with tariffs, I think cash is king to kind of buffer client portfolios in this environment.
Cris Sheridan:
Absolutely. It makes a lot of sense. And once again, I want to note that when we spoke with you late last year, you had mentioned how we had raised cash and trimmed back on some of those higher-priced Mag 7 stocks that we were holding, taking profits and continuing with that near-term caution on the stock market outlook into the beginning of this year. That has been a good call to make. So if any of our listeners want to come on board with us to speak with you about your outlook and how we can assist them with their money management or financial planning needs, Chris, what is the best way to do that?
Chris Puplava:
They can email me at chris[dot]puplava[at]financialsense[dot]com or they can give me a call at 888-486-3939.
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