Mid-Week Macro (6/25/2025)
The missile exchange between Israel and Iran appears to be over. This has caused oil prices to drop to $65, and the S&P 500 to rally back above 6000. This feels like a top to me on Wall Street, with a lot of bullishness and euphoria. I keep hearing analysts speak optimistically that inflation is under control, interest rates are coming down, and there will be no recession. They are only focusing on the positive data, but there is plenty of negative data they are ignoring.
In two weeks, on July 9th, the pause in tariffs will be lifted. I'm expecting Trump to hold firm on high tariffs. Wall Street is expecting him to be Mr Taco (Trump Always Chickens Out). I'm expecting at least one significant trade war, and the average tariff to be at least 15% (the average was 2.5% in 2024). These tariffs are not a nothing-burger, and I doubt that the economy is strong enough to overcome them.
Where are the green shoots in the economy? AI? That's probably a net-negative as companies like Microsoft lay off thousands of employees and replace them with AI. Housing/Construction? Nope. Autos? Nope. Small business growth? Nope. Retail? Nope. Restaurants? Nope. Government jobs? Nope. I don't see any green shoots. The economy is muddling along and slowing.
Gold continues to track the S&P 500. This began in early 2024 and has been a strong correlation. This is an odd correlation that makes little sense. Historically, this does not happen. When the stock market took off in 2012 and 2013, gold plunged. That is more of the norm. Why is gold so strong with a strong stock market? My take is that the stock market is the poser. Gold is sniffing out real economic problems (massive government debt, Triffin's Dilemma, inflation, de-dollarization, etc). Gold knows that the stock market is in a bubble.
Silver is finally making some noise. It closed today at $36.23 and has been over $35 for more than two weeks. However, even at $36, the GSR is at an elevated 92. So, silver continues to underperform. Some think silver is breaking out here, but I think it is a bull trap. Silver is not ready to run yet. It will need a fear trade for that outcome (the stock market to stop going up). Expect gold, silver, and the miners to correct one more time before we are off to the races.
The S&P and Gold may be rallying together because both sense dollar devaluation coming soon. Call it an inflation rally. Look at the Argentina stock market 10-year chart, up big in Pesos. But it might not have been enough to preserve wealth. The S&P remains over valued, and that's a separate problem.