Mid-Week Macro (5/14/2025)
Mid-Week Macro
The stock market ripped higher this week, with the S&P 500 closing today at 5892. The PE is at 22, and earnings have to be in the double-digits to maintain 5800. The stock market is overvalued and will have a hard time maintaining this level. Moreover, the two trade deals that Trump made (UK and China) were both one-sided, with the US receiving higher tariffs. Conversely, US consumers are on the hook for higher prices. Bessent said that 30% tariffs on goods from China would be the floor, meaning that US consumers were going to pay higher prices (which will feel like a tax). Goods from the UK will face a 10% tariff, which is likely the minimum Trump will charge. This is not good news for US consumers. Why is the stock market so giddy?
If you remove Amazon from the calculation of the consumer discretionary sector, earnings are negative for the year. Amazon's largest earnings are from its services division (AWS), so it is misleading to even include it in consumer discretionary. So, the US consumer is under stress, which is a bad sign for the economy. Technology (MAG7) was the stock market leader in 2024. It is negative for the year. Who is the current market leader? There isn't one. How do you have a strong stock market without leadership? Can you name an economic sector that is healthy?
Gold, silver, and the miners got whacked this week. Gold is now off 9% from its recent high. Most of the miners are off by more than 9%. The HUI is back in its ugly 10+ year correction channel (the upper range is 365). Gold closed at $3185 and silver at $32.16. The HUI is at 358. Sadly, the lower end of my targets are now in play, which are $2800 gold, $28 silver, and 280 HUI. I don't want to see any of these levels retested, but they might in the next 90 days.
Silver was the tell. It refused to break out above $35, and now we see why. I'm still expecting another leg down in the stock market, back to 4800. When that happens, we will find out the next cycle lows for gold, silver, and the miners. Keep some dry powder to buy the dip.