March 21, 2025 – Jim Welsh at Macro Tides explains that that Wall Street’s current rally, sparked by Trump’s election, may falter due to looming reciprocal tariffs set for April 2nd, risking a trade war unseen since the 1930s. He predicts the S&P could hit 5850 short-term but sees vulnerability signaled by a lagging advance-decline line. Welsh warns deficit cuts will slow growth by 2026, while the Fed stays neutral despite tariff-driven inflation. Gold, he says, may drop to 2600 from overbought levels. Investors should watch tariffs, gold sentiment, and midterms, as uncertainty looms.
Website: Macro Tides | Macro-Economics & Technical Analysis Expertise
Charts and report discussed: Persistent Uncertainty
Transcript
Jim Puplava:
Some good news for investors this week. We finally have a rally going on Wall Street. Will this rally continue after the severe drop that we've seen in February? Well, let's find out. Joining us on the program is Jim Welsh from Macro Tides. Jim, let's take it from the top. I mean, we had the euphoria that came into the market with the election of Trump. It was going strong even at the beginning of the year. And then we hit February and of course the tariffs and a lot of the uncertainty over policy began to take over. And then there's the possibility that the Fed may stay on hold and not cut rates. But we've got a rally going. I guess as you look at this, is this sustainable? Because one of the things that has not been supporting this rally is the advance-decline line.
Jim Welsh:
Yep. It’s good to talk to you again, Jim, and if anyone would like to receive a recent letter that I’ve published about some of the things you and I are going to talk about, [send an email to] jimwelshmacro[at]gmail[dot]com. Happy to send you out the recent Weekly Technical Review and the March Macro Tides, which covers a lot of stuff. So the way you framed it, Jim, was very accurate. Coming into this year, people were excited. And also, I think a lot of people thought that Trump was kind of bluffing about the tariffs that he was talking about. And what I wrote, you know, a month ago was no, he’s not joking about this. He’s very serious. His Treasury Secretary Besant last June gave a speech and he talked about the need for a grand global reordering. And I want to be a part of that. So when I read that, you know, it immediately made me believe that, wait a second, this isn’t a negotiating tactic. They truly believe that they’re in the right to do the tariff stuff and so forth. So that was one of the wake-up calls that Wall Street, oh, wait a second, he’s actually serious about this and he’s going to continue to follow through. So what was cool—and you and I talked about this the last time we chatted—was that the S&P was making new all-time highs, but the advance-decline line was making a lower high. And as I’ve written many times, you can go back to 1928 and intermediate declines of 10% or so and major bear markets have consistently been preceded by that divergence where the price of the S&P [is] making a new high and the average stock not doing as well. So my take was that we were set up for a decent-sized pullback. The S&P dropped a little over 10%. As we got to last week, [the] market was very oversold. Sentiment had shifted very dramatically. You know, where people were optimistic in January, now all of a sudden it’s like, oh, my God. So the market was set up for a rally. And as I wrote in Monday’s Weekly Technical Review, I thought we’d see a rally that would last seven to 10 trading days, get up to 5750 and maybe as high as 5850. But to answer your question, are we going to have a sustainable rally that will last months? I don’t believe so, because the issue of tariffs and so forth are likely to flare again on April 2nd when President Trump announces reciprocal tariffs. So we’re going to see another stage of this, you know, tariff negotiation-slash-war, you know, become front and center on April 2.
Jim Puplava:
I want to talk about something that the media is upset [about], Democrats are upset [about]. That’s DOGE and budget cuts. I don’t think it’s been explained to the citizens of this country the risk this country is in when we are adding 1 trillion of debt every hundred days. The interest on the debt is over a trillion dollars. It’s greater than the defense budget. If we keep going and we don’t cut, we’re going to go bankrupt.
Jim Welsh:
Yeah. Treasury Secretary Besant over the last week or two, Jim, has kind of said everything you just said, that we really need to do it now. And I agree entirely. But again, are they doing a great job of explaining to the average person? Because in the short run, tariffs are going to raise prices. In 2018, the tariffs were fairly narrow, but on the things that were tariffed, prices went up over 4% as opposed to everything else going up, you know, a half a percent. So that gets passed along. So in the short run, a lot of people who voted Republican and for Donald Trump for the first time in their life because, gee, you know, when he was president, things were better—my rent wasn’t so high, the cost of food wasn’t so high. Yeah, life was just better. And those people, I think, are expecting that price levels will come down and return back to 2018 levels. That’s not going to happen. But in the near term, it’s going [to happen that] price levels are likely to go up on a lot of stuff until all this stuff shakes out. So I think that’s a real problem for the administration. We’re 20 months away from the midterm elections in November of ’26. And so they have really a short runway, Jim, to get a lot accomplished. And I think that’s why we’ve seen the speed of all the things—executive orders, DOGE, and so forth—coming into play. So, and one final thing, the Government Accountability Office was started in 1921. It’s a nonpartisan agency. In other words, they don’t favor Democrats, they don’t favor Republicans. Their job is to evaluate spending and all the different government programs and identify inefficiencies, fraud, and waste. In April of last year, they came out and said somewhere between 230 billion and 520 billion dollars of waste and fraud occurs every single year. So people may not like Musk and so forth, but that’s a heck of a target to be going after. How can we find 2 to 3 or 400 billion a year in waste? So again, I don’t think the administration has really done a good job of communicating—not about Musk, but how important [it is] to identify waste and fraud and cut it out because that’ll free up a lot of money for other programs.
Jim Puplava:
You know, one of the things also isn’t explained—it was the Biden administration talked about the growth rate of the U.S. economy over the last four years. We’ve outdone Europe, we’ve outdone Japan, and even China. But all of that was government spending. I mean, government spending has gone up like 60 to 80%. And I was reading, Jim, that last year, I think it was like 80% of the jobs were government jobs. So we’ve become addicted to this government stimulus and government spending, and we’re now at the point where we can’t afford to do that anymore. And that is also something that needs to be explained because a lot of this supergrowth that you’ve seen has all been government spending, which has been financed by deficits and debt.
Jim Welsh:
Yeah, I mean, it’s almost like, you know, drugs that some sports people have used to enhance their performance, you know, in the official sports, that’s cheating. And so again, the government’s stimulus—and I think Besant actually used that word, addiction. And the point I’ve been making for the last several months is the Trump administration wants to cut the deficit from $2 trillion, which is where it was last year, and 6.4% of GDP. We haven’t had a deficit like that, Jim, with the economy growing at 2.5% ever. So on top of that growth, you have all this additional government spending. That’s why the economy has been doing in large part as well as it is. But if you cut government spending from 2 trillion to 1 trillion, basically cut it from 6.4 down close to 3, that is going to have a negative impact on economic growth. And that’s the other thing that again is likely to happen is that the economy is going to slow over the next—they want to accomplish that, Jim, by September 30, 2026. That’s the end of the 2026 fiscal year. And again, is it a worthy goal? Is it necessary? Absolutely. But there’s going to be an economic reality that sets in, I think, progressively as we go through this year and maybe more so next year. Some of whatever cutbacks in spending occur, it’s going to have a more pronounced impact on the economy slowing.
Jim Puplava:
Well, you know, it’s interesting because they always say presidents try to get all the bad stuff done [in] their first year in office. So because the following [year], you’ve got congressional elections, and it seems like the pace at which they’re going, that’s exactly what they want to do because, you know, I’ve watched on television Democratic strategists—their goal is to recapture the House in 2026, to impeach the president, to put Elon Musk on trial, and go after his Cabinet. So knowing that that’s what their objective is, the Trump administration has got to be cognizant of, boy, we better make this thing work by October of 2026 or we could be in trouble.
Jim Welsh:
Yeah, no, I think the clock is ticking. And again, as I said, I think that’s why we’ve seen so much happening in the first 60 days. The thing to add to maybe what the Democrats hope is that if they regain control of the House, which is extremely likely—the party in power going into midterms has consistently lost House seats. So they have a plurality, I think, of four seats. So this is a low bar to hurdle. But if they have control of the House, they can stop all legislation from actually coming to a vote. So forget about going after Musk and Trump. The real Achilles’ heel is being able to thwart any changes out of Congress. And if they control the House, they’ll be able to do that.
Jim Puplava:
So a lot of turmoil. So let’s get back to the market. Given this, we’ve got a lot of uncertainty. It is going to be going ahead. I would suspect at some point we’re going to settle down on the tariffs. Maybe, you know, by summer it gets down to reciprocal tariffs. You put 10% on us, we’re going to put 10% on you, and maybe this settles down somewhat. But in the meantime, a lot of turbulence. And I’m not sure what the Fed’s going to be doing here because they’ve got to be cognizant of these tariffs and the impact that’s going to have on prices.
Jim Welsh:
Yeah, I think, you know, Fed [Chairman] Powell yesterday during his press conference—I don’t know how many times he used the word “uncertain” or “difficult to see what’s happening,” but that was one of the major themes because nobody knows how much of the tariffs are going to come in, how long they’re going to be in place. And that has big implications for obviously how much inflation will tick up. Now, he did reference, Powell, that is, you know, what they did in 2018. And they looked through it, they thought, okay, this is going to be a one-time increase in price levels that will pass through the economy and then that’ll be it. But in 2018, Jim, there were a couple of things that aren’t in place today. In 2018, companies were loath to raise prices because inflation was very, very low and stable from 2010 to 2018. So if you raised prices, you were at risk then to lose market share. So psychologically, you had that in place. And what we have now, companies just went through a period where they could raise prices because of the pandemic, all the money that was given to consumers in terms of distributions and so forth, so people could afford the price increases and so on. So I mean, the inclination for companies to increase prices is, I think, far greater now than in 2018. Plus, the amount of tariffs and the products that are going to be covered is, I don’t know, it’s at least triple what it was in 2018. We’ll know if it’s more than triple once we see the reciprocal tariffs. So what Powell said yesterday is, hey, you know, we kind of looked through it in 2018. I think that’s their bias, Jim. But obviously, if this turns into a true trade war and the reciprocal tariffs ignite retaliatory tariffs from other countries, you know, they will amend that position. But all that said, I don’t think the Fed’s going to be hiking rates. A) because they also know, and they noted in their projections for the economic projection, that GDP growth—they downgraded it from 2.1 to 1.7%. That was 2.1 in the December meeting. 1.7—four-tenths of a percent—is a huge haircut in three months. So that’s why I don’t think the Fed is going to be inclined to raise rates even if the tariff inflation proves a bit more than expected, because I know they understand the economic ramifications, and that is the economy is going to slow down. And, you know, they expressed that in their summary of economic projections yesterday.
Jim Puplava:
And you can see this in terms of the valuations. You’ve heard people talk about, whether it’s the Shiller CAPE, the Buffett Indicator, the market is at extreme levels in terms of valuation. And we’re starting to see—and what does this tell you, Jim?—we’re seeing the Mag 7 stocks, which have driven the markets in ’23, ’24, and [the] beginning of this year, they’re breaking down. Whether you’re looking at Amazon, whether you’re looking at Microsoft, all the Mag 7 are not so magnificent anymore.
Jim Welsh:
No, you’re 100% right. And the weight that they have in the averages like the S&P 500, I think that it peaked at around 35%, which is extraordinary for seven stocks to have that much representation in what’s supposedly a broad index. So that’s going to be dead weight unless they can truly catch a bid. And if the economy slows, I just don’t think that that’s the environment where those stocks will get a bid. And then the other stocks that are more exposed to the economy, cyclical stocks, they’re not likely to get a, you know, a bid sustainably because, gee, if the economy [is] slowing, at some point in time, people are going to say things are slowing down. Oh, man. Maybe a recession is around the corner. That’s not the kind of environment where you rush out to buy cyclical stocks. So that warning that the advance-decline line provided two, three months ago and up until the high in mid-February, you know, to me it was a big yellow flashing light saying the market is vulnerable, especially if given a reason to sell. And we now have reasons to sell. You’ve got tariffs that are going to cause inflation. The economy is going to slow as a result, and yet the Fed is going to be kind of stuck in neutral while some of that is going on, which isn’t the prescription, if you will, that the stock market would want. In other words, you show some signs of slowing, the Fed cuts immediately. I think the tariff problem will delay the reaction time that the Fed has. So there’s a lot of issues here. So my take has been that, okay, we get this bounce that began last week, it goes for a little longer. The S&P can get up to 5800, maybe 5850. But I would be very surprised if we don’t see another selling wave take place once we see the April 2nd reciprocal tariffs. Unless, you know, that doesn’t happen, which I think is extremely unlikely.
Jim Puplava:
Well, let’s talk about something that has been a superstar performer not only last year, but this year, [and that’s] the price of gold. What’s your take here?
Jim Welsh:
My take last year and this year was that gold was going to rally above 3,000. So it’s accomplished that. What has me concerned, Jim, in the very near term is sentiment toward gold is very evident. I mean, people are just bullish. All right, and you know, people who have become bullish, what have they done with their money? They’ve already bought it. So the risk of some disappointment is greater when you’ve got so many people that are already in a position than not. The other thing is the price pattern from the low of 1616 back in September of 2022. On the chart, you can see 1, 2, 3, 4, and I think we’re nearing the end of wave 5. And I know this sounds like gobbledygook to probably most of the people listening, but it’s just pattern analysis. And whenever there’s a five-wave move, whether it be up or down, you are going to then get a countertrend move. So if you have five waves down, okay, you’re going to get a bounce; five waves up, you’re going to get a correction. So I think gold is nearing a high and that a drop to 2700, maybe even 2600, is coming over the next handful of months. So I’m more cautious about gold than I have been at any time in the last year.
Jim Puplava:
All right, well, summing up, Jim, we expect a lot of uncertainty, a lot of turbulence here in the next six months as the Trump administration tries to deal with the nation’s debt issues and of course, tariffs on manufacturing, especially when we’re trying to reindustrialize the country and bring companies back here. So I assume then that you’re in a defensive posture right now.
Jim Welsh:
Yeah, yeah, I think the market is vulnerable, you know, from a tactical standpoint. You know, when the market bottomed last week, what I wrote was, hey, [expect a] rally. But after that, I think we’ve got another leg down because the tariffs, the reciprocal tariffs, have the potential of being as big, if not bigger, than the tariffs already announced against Canada, Mexico, and China. So again, I can’t imagine that the market is going to rally on that news if President Trump follows through. And, you know, I think there’s going to be a number of countries that aren’t going to be happy about that. So a full-blown trade war, I think, is more possible now than any time, probably since the 1930s.
Jim Puplava:
All right. Well, listen, Jim, as we close, if our listeners would like to get your latest newsletter and your thoughts on the market and the economy, how could they [do so]?
Jim Welsh:
Well, just send me an email, jimwelshmacro[at]gmail[dot]com, and, you know, let me know that you heard me talking to Jim. And I’m happy to send out the—as I said earlier—the Weekly Technical Review and the March Macro Tides, or you can go to macrotides.com and, you know, check out my website.
Jim Puplava:
All right. Well, listen, Jim, as always, thanks for joining us on the program. All the best. And come back and talk to us again.
Jim Welsh:
Looking forward to it, Jim. We live in interesting times for sure, certainly this year. All right. Stay well.
Jim Puplava:
Okay. You, too. Take care.
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