April 11, 2025 – This week on Smart Macro, Chris Puplava, Chief Investment Officer at Financial Sense Wealth Management, delves into the markets' volatile landscape and the signals pointing to a potential near-term bottom. Chris explains how credit markets, often more reliable than equities, are stabilizing after a turbulent period, suggesting signs of a tradable bottom—though uncertainty around tariffs and policy could still hinder progress. He highlights key indicators to watch for a lasting recovery, including cheap valuations, extreme negative positioning, and policy intervention. Additionally, Chris shares insights into a potential generational buying opportunity in silver, driven by an ultra-high gold-to-silver ratio, and discusses why foreign stocks could soon outperform U.S. equities. With actionable strategies for navigating today’s uncertainty, this episode is packed with must-hear insights for investors.
Related podcasts/articles mentioned in today's show:
- Silver: A Generational Buying Opportunity?
- David Woo: Tariff Calculation Aimed at Bankrupting China
- From Epicenter to Aftermath: Preparing for the Economic Impact of Trump’s Tariffs
- Credit Markets Still Urging Caution on the Stock Market, Says Chris Puplava
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Key topics discussed:
- Credit Markets Stabilizing: Chris Puplava highlights that credit markets, often more reliable than equities, are showing encouraging signs of easing stress, hinting at a potential market bottom.
- Event-Driven Bear Market: He argues that the current market decline resembles an event-driven bear market, largely caused by tariff uncertainty, rather than a structural or cyclical one.
- Uncertainty Still a Challenge: While there are signs of a tradable bottom, ongoing tariff-related volatility and inconsistent policy communication create significant market uncertainty.
- Indicators for a Lasting Bottom: Chris outlines four key factors to watch for a lasting bottom: cheap valuations, extreme negative positioning, policy intervention, and slowing macro deterioration.
- Tariff Policy Risks: The market remains vulnerable to sudden shifts in trade policy, with Trump's on-again, off-again tariffs keeping anxiety and volatility high.
- Generational Silver Opportunity: Chris sees a rare opportunity in silver, driven by the gold-to-silver ratio exceeding 100, a historical signal of major market bottoms for silver.
- Weak Dollar Outlook: A potential decline in the dollar, fueled by trade disputes, could boost silver prices and shift performance leadership from U.S. stocks to foreign markets.
- Bear Market Recovery Timelines: Drawing from historical data, event-driven bear markets typically recover faster than cyclical or structural ones, but policy clarity is key.
- Consumer and Business Hesitation: Stagflationary sentiment, inflation concerns, and trade uncertainty are discouraging consumer spending and business investment.
- Actionable Insights for Investors: Chris emphasizes opportunities in silver and foreign stocks while advising caution until policy intervention or macro improvement signals a clearer recovery.
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Transcript
Cris Sheridan:
Welcome everyone to this week's Smart Macro edition of the Financial Sense Newshour. We're going to speak with our chief investment officer here at Financial Sense Wealth Management. Chris, when we spoke with you two weeks ago, you were arguing that the credit markets were still suggesting caution on the outlook. We also shared a chart and discussed how the technical indicators that you follow, including the divergence between the S&P and the credit markets, were suggesting at least another 8% downside from where we were then, around the 5500 zone in the S&P. Of course, just last week and this week, we've seen further downside, as we discussed, with all the uncertainty around tariffs, the back-and-forth retaliation, and now the 90-day pause that has been announced. So, lots of volatility in the market. But again, kudos for suggesting further downside, as we did see. Given that it looks like markets are trying to stabilize and find some sort of bottom, what is your outlook currently?
Chris Puplava:
Well, you know, Cris, this was a wild week. The quote that comes to mind is Vladimir Lenin, where he said, "There are decades when nothing happens, and then there are weeks when decades happen." It feels like the latter this week. I was definitely seeing some warning signs in the credit markets, and I kept saying whenever there's a divergence, usually the credit market has it right. That was certainly the case since you and I last spoke, where the credit markets were breaching their August lows from last year and were showing a fair amount of stress. They really didn't rally for the end-of-March period, unlike the stock market, which had a decent rally. What's encouraging is the decline that we saw in stocks—as dramatic as it was, believe it or not, it was worse in the credit markets. Looking at credit default swaps, they were getting almost to levels we saw back in October of 2023. Just to give you an idea, back then, the S&P was trading closer to around 4,100. So, pretty dramatic. We did have a dramatic rally after Trump suspended the reciprocal tariffs. What was encouraging to see is a pretty dramatic rally in the credit market. They showed a lot of improvement along with the stock market. I would be very concerned if we saw that huge jump in stocks without seeing that easing in the credit market. So far, so good. They'll be watching on pretty much a daily basis, seeing if we see continued easing and pressures rescind a bit. So far, so good. This is really encouraging to see in terms of this market not just healing on the equity side, but also on the credit market side.
Cris Sheridan:
Okay, that's a really big point because, as you spoke with us two weeks ago, you said that the credit markets were diverging relative to the S&P 500. But now at this point, they are showing constructive signs for a potential bottom. Did I get that right?
Chris Puplava:
That's correct. They're definitely showing signs of at least a tradable bottom. Now, whether the bottom is in, I'm skeptical. There's still a lot of uncertainty. A good thing to remember is Trump announced the auto tariffs, that they would take place, and then later he suspended them, only to put them eventually back on. So, honestly, who knows what Trump will do? That's where we're going to have a general high level of anxiety, a high level of volatility, because Trump can easily put the reciprocal tariffs back on or change his mind. That's the problem—one of communication and consistency. Until we have that, I don't think you're going to get an all-clear. Granted, he did suspend the reciprocal tariffs for a period of 90 days, but I don't know if we've seen the end of the story. I don't think anyone could say that with definitive conviction. That's why I think it's going to be really hard for the market to make too much upward progress; that uncertainty is still there. It makes sense that we're kind of back from the brink, but we really need to see some successful trade deals done between the US and its trading partners and a little calm out of the White House, I think, for a lasting bottom to be seen.
Cris Sheridan:
Yeah, absolutely. As we discussed starting out this year, our outlook for 2025 is that the markets and the economy are going to be wildly at the mercy of policy this year. What are some of the longer-term, bigger-picture things that you're looking at when you think about the market or economic outlook over the remainder of this year?
Chris Puplava:
Well, I think what's really important is to understand the environment. Let's say we are—a lot of indices hit bear market levels, and even if we return to those lows and test them, more or less, we're basically in a bear market. One thing I thought was a really good study that I saw decades ago, and continues to be built on, is a framework that Goldman Sachs has created. They define bear markets in three different types. There's structural, which takes years upon years. Think of the Great Depression, the tech bubble burst, or Japan and its stock market, basically in a long-term secular decline ever since 1989. Then there's cyclical, which are your traditional bear markets related to the business cycle, where you have a decline in the economy, a decline in corporate earnings, and a traditional run-of-the-mill bear market. Then there's event-driven. Event-driven would be something like COVID, a financial crisis like the 1998 Asian currency crisis, or the '87 stock market crash. It's important to look at those three because the structural is the longest-lasting, followed by cyclical. Event-driven bear markets tend to be shorter in duration, but they tend to be still on the order of the same magnitude as you would normally see in a normal cyclical bear market. Structural could last up to 42 months, cyclical on average around 27 months, so about two years. Event-driven historically have lasted around eight months. What's really important is to get that distinction because a structural bear market can take up to 111 months on average to reclaim the highs, cyclical could take up to 50 months, but event-driven take 12 months from the peak. So, if you think about it, you've got eight months of a downward move, the event is cleared, markets come roaring back, and within four months of the bottom, you're basically at a new high. From peak to trough, we're talking about a year. If you think about this, and I think it is important to look at it, as of right now, this is really an event-driven, self-inflicted bear market caused by Trump's tariffs. Just like COVID, if you think about it, Trump is kind of like the virus and the vaccine. He caused this downturn; he can easily fix it. By suspending the tariffs and coming up with some trade deals, that uncertainty is done. Let's say he keeps the 10%—well, at least now we have a baseline, and we all know what the playing field is going to look like. The hard part is if he continues with this on-again, off-again policy because it really creates a lot of uncertainty. We just got the Michigan Consumer Sentiment Survey, and it plummeted, both the current situation and expectations out in the future. Inflation expectations also surged while sentiment went down. It was very stagflationary. Consumers are looking at higher levels of inflation as well as a reduced economic outlook. No one knows what to do or make sense of all these policies and how they're going to impact them. It's really hard to make, as a consumer, any big purchases, or for a business, to put on hold a lot of capex projects because, how do you know what your cost is going to be when you've got all these import tariffs? He's talking about restrictions on commodities coming in with steel and aluminum tariffs. It makes it very, very difficult for any company to operate a business or for consumers to run their budgets. My biggest concern is this could turn into a cyclical bear market where we actually have a traditional recession just because of everyone holding up and pulling back on spending, whether it's corporate spending declining or consumer spending. This could still turn into a cyclical bear market because of all the uncertainty that Trump has unleashed.
Cris Sheridan:
So, Chris, going back to what you said earlier, there are constructive signs for a potential market bottom, given that the credit markets are stabilizing and they're not diverging from the S&P 500 at this point. What are some of the things specifically that you're going to be looking at to identify whether or not you'd be a little bit more firm in saying it looks like the bottom is in, and it's time to get more aggressive into the market again?
Chris Puplava:
There'll be four main things, and these were a lot of what Goldman was talking about in terms of their analysis, "Anatomy of Bear Markets." You typically want to see four things. One, you want to see cheap valuations. That's definitely something that is typically seen at major bottoms at the end of a bear market. Secondly, you want to see extreme negative positioning—essentially, at the end of the bear market, everyone capitulates. You have all types—retail investors, institutional investors, mutual funds—even have higher cash levels at typical bottoms. So, you want to see a lot of people have sold, and that basically leads to selling drying up. Third, you want to see policy intervention. Most bottoms—and this was something that I talked about in the client letter that went out, where I had a chart—investors stop panicking when policymakers start panicking. Essentially, what we would be looking for is policy intervention. We'd want to see fiscal policy or monetary policy step in. Then, the fourth phase is you want to see a slowing of macro deterioration. That's the hard part, Cris, because this has happened so fast that we really don't even have the full impact of tariffs. What we've seen is the soft data has responded—the soft data has clearly done that, where sentiment has come down—but not the hard data. That's going to take time. It's really hard to say that the slowing of macro deterioration has happened. Some good signs would be trade deals, right? Because if we start to see trade deals, then you'll start to see investors saying, "Okay, now that we've gone the other way around, we've probably seen a bottom," even though the data is still yet to come, but there would be some improvement there. When you look at valuations, Cris, we got down to a forward P/E of about 18 times on the S&P. When you look at prior lows, like COVID, we were around 13; the bottom of '22, we got down around 15; the mini bear market of Q4 of 2018, we were about 14 times earnings. We've had bottoms in 2009, '11, and '12, and when we look at the forward P/E right now, or at the low, we got to around 18 or so. That would be why I would say we're not quite there yet in terms of valuations. Valuations can come down, Cris, just by the market trading sideways, right? As earnings continue to grow, maybe at a smaller or slower pace, we're definitely not quite there. Valuations don't matter when you have policy intervention, right? If the Fed came out and said, "You know what, we’ve got to calm the bond market, we're going to start supporting it through bond purchases and basically expand their balance sheet again," well, then the bottom's in, right? Then you've got the policy intervention. But outside of that, the other one I was looking at this week was extreme negative positioning. I can look at a couple of ways. In our industry, the investment advisory industry, you have the National Association of Active Investment Managers that surveys, looking at mean exposure. I'd say we're only halfway there. Unfortunately, this does come out weekly, so I'll be looking at that very intently next week to see what the updated levels were at, but not quite at the capitulatory levels I saw in '22, '20, '16, '11, and 2008. So, about halfway there. Then we also have the American Association of Individual Investors. Think of retail investors, and we look at their stock allocation—we're still pretty high. The average stock allocation was around 68% exposure to stocks. When you look at, let's say, COVID, that got down to 55 or so; in 2009, we got down to 40. We're a long way from where you would typically see a normal major bottom. Whether it's professional investors or retail investors, we're not quite there yet. That's why I think we've got some more work to do. Then, policy intervention—we really don't have any. You could say that Trump essentially putting a pause on the reciprocal tariffs was monetary or fiscal intervention, but it's not really stimulus. We don't have the tax cuts yet. We still have a lot of uncertainty. I wouldn't say we have any major trade deals, right? So, no positive fiscal support. We're starting to at least, with his announcement to suspend the tariffs, but definitely do not have anything on the monetary front. If we continue to see the Treasury market become unglued, I think that is a real distinct possibility that we might see more buybacks by the Treasury. We might see the Fed basically do yield curve control, where they more or less sell short-term securities, T-bills, to go and buy and swap those with longer-dated debt to bring down longer-term interest rates, or just outright do asset purchases. We do not have monetary stimulus as of yet, and not really fiscal stimulus—just a little bit of improvement with some clarity with Trump delaying tariffs. That's what I'm looking for, Cris—those four items. As of right now, we're really not seeing cheap valuations, not really seeing capitulation in terms of positioning, whether retail or institutional investors, and not really seeing a panic by policymakers at this point.
Cris Sheridan:
So, Chris, you published two articles this week on our site, financialsense.com. I will have a link out to both of those, talking about a potential generational buying opportunity in silver. Can you tell us a little bit about what you're seeing with silver and then also, as you mentioned in your other article, when it comes to foreign stocks?
Chris Puplava:
What I was noticing—and a client brought this to my attention—was that the gold-to-silver ratio was north of 100, and I hadn't looked at it. That's just a persistent bullish move in gold, while silver has traded down or sideways over the last few years. What I did in the article was look at what happened when gold exceeded 100 times the price of silver. What was interesting was that it often has marked the bottom of a bear market in silver and precious metals in general. We had one time—the first period was basically in 1991. That was after a 10- to 11-year bear market in precious metals throughout the '80s. When that ratio hit 100, it only did that briefly for a matter of days. That actually marked the bottom, where then we saw silver really start to take off after that. The other time was during COVID. When gold surged and silver and other commodities collapsed, the ratio actually went vertical, and it spiked very quickly up to a high of 124. That obviously was a bottom in silver, and silver did start to take off from that point. Currently, right now, we're over 100. Gold has had a huge influx of buying; it's been doing that all year and carrying on gains made in prior years. Given that it's extremely rare for gold to trade higher than 100 times the price of silver, our feeling is that this is a good time to add some silver exposure for those who may not have it. This could also be a reason why silver does well—we could be heading into a protracted period of a weak dollar. When the dollar is weak, that really provides the fuel for silver to play catch-up. Sometimes, in times of stress, you have gold and the dollar move together, while silver and other base metals do poorly. With the dollar index basically hugging that 100 line—that's a real critical line—we may be on the cusp of seeing a significant dollar decline caused by the tariff uncertainty and foreigners possibly dumping our dollars. Should the dollar index begin to go on a 5-10% decline from here, that would definitely, I think, be the fuel that can help silver to really take off. Additionally, it could lead to a trend break in U.S. assets or U.S. stocks outperforming foreign stocks. That's been a really bullish trend that's been in place ever since roughly 2009. But if we have continued weakness seen in U.S. stocks relative to foreign, we could be on the verge of breaking that relationship. That's why we're very much interested in looking at emerging market stocks and foreign stocks in general.
Cris Sheridan:
All right, so in sum, as we discussed today, the credit markets are showing some constructive signs for a potential bottom. There's still a number of things that are on your radar, particularly when we think about soft versus hard data, to get more worried that we're moving, as you said, from an event-driven bear market more into a cyclical bear market or worse. It's still too early to say if that's the case, but at least when you look at those shorter-term indicators, whether or not that is on the technical side or with the credit markets, there are some constructive signs. But as you mentioned, in the bigger picture, you're looking at a potential generational buying opportunity with silver, which is why you increased exposure. Then also, when you think about the potential for a longer-term decline in the dollar—this is something we've spoken with Marc Chandler about in the past that is definitely playing out—in which case we may start to see foreign stocks outperform U.S. stocks. So, some really good investment strategy considerations here in terms of portfolio allocation, which is what you handle here at Financial Sense Wealth Management. If any of our listeners would like to come on board to find out more, what would be the best way for them to reach you?
Chris Puplava:
They can send me an email at chris[dot]puplava[at]financialsense[dot]com, or they can give me a call at 888-486-3939.
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