The Bear Thread

Year of the Snake? More Like Year of the Bear


“Bulls make money, bears make money, and pigs get slaughtered.” -Old Wall Street saying

We already had our New Year here in the United States, but the Chinese New Year begins today and with it brings the Year of the Snake. The snake is the sixth of the twelve-year cycle of animals that appear in the Chinese Zodiac. Although snakes don’t have a positive connotation in the US, in Chinese culture they have positive symbolism. For example, they are regarded as little dragons and the skin snakes shed is referred to as the dragon’s coat, symbolizing good luck, rebirth, and regality.

Although we would never suggest investing based on the zodiac signs, it is interesting to note that the Year of the Snake has historically been quite weak for stocks. We noted last year why horned animals tended to be bullish and that played out quite well last year with the Year of the Dragon .

The 12 zodiac signs appear in the following order: Rat, Ox, Tiger, Rabbit, Dragon, Snake, Horse, Goat, Monkey, Rooster, Dog, and Pig. Each sign is named after an animal, and each animal has its own unique characteristics. Someone born during the Year of the Snake tends to partner well with an Ox or Rooster, but things don’t mesh so well with Tigers or Pigs.

Since the Chinese New Year typically starts between late January and mid-February, we looked at the 12-month return of the S&P 500 starting at the end of January dating back to 1950. And wouldn’t you know it? The Year of the Snake has been up only three out of six times and up an average of less than 1%. Additionally, stocks have alternated between higher and lower since 1953, suggesting this could be a down year.



Here’s how all 12 signs have done since 1950. Historically, the snake is indeed the worst sign, with the Rooster the second weakest. Turns out the Year of the Goat has the strongest returns (maybe there’s something to that “greatest of all time” acronym), but you’ll have to wait till 2027 to see that one again. Next year is the Year of the Horse, which hasn’t been all that strong either. Lastly, we found it amusing that animals with horns saw some of the best returns, with last year’s horned Dragon a good one for the bulls. I did a little more research and it turns out that some snakes have horns, so maybe all hope isn’t lost just yet!



This is all in good fun and of course in no way should you invest based on zodiac signs. For more of our real-time thoughts on DeepSeek, AI, the tech collapse, and more, be sure to read what Sonu Varghese, VP Global Macro Strategist, had to say in DeepSeek: Did China Just Eat America’s Lunch?

 

February historically worst month for S&P 500 and NASDAQ in post-election years

February is in the middle of the Best Six Months, but its long-term track record, since 1950, is not impressive. February ranks no better than sixth and has recorded meager average performance, with one exception, Russell 2000. Small cap stocks, benefiting from “January Effect” carry over in some years; historically tend to outpace large cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.1% in February since 1979, the sixth best month for that benchmark. Russell 2000 has had a challenging January this year with only brief hints of the “January Effect.” Without this typically bullish momentum, Russell 2000 could also continue to struggle this February.

February’s post-election-year performance has been wretched since 1950, ranking dead last for S&P 500, NASDAQ and Russell 2000. Average losses have been sizable: –1.3%, –3.0% and –0.9% respectively. February ranks tenth for DJIA in post-election years with an average loss of 0.8%. February 2001 and 2009 were exceptionally brutal. NASDAQ dropped 22.4% in February 2001, its third worst monthly loss ever. One minor reprieve from the longer-term gloom is all five indexes have advanced in the last three post-election year Februarys (2013, 2017, and 2021).

Not a subscriber? Sign up today to continue reading our latest market analysis and trading recommendations and get a full run down of seasonal tendencies that occur throughout each month of the year in an easy-to-read calendar graphic with important economic release dates highlighted, Daily Market Probability Index bullish and bearish days, market trends around options expiration and holidays. In addition, the Monthly Vital Statistics Table combines stats for the Dow, S&P 500, NASDAQ, Russell 1000 and Russell 2000 and puts them all in a single location available at the click of a mouse.

 

Welcome to the Worst Month of the Year in a Post-Election Year (and Why American Doesn’t Want the Eagles to Win)


“The only place success comes before work is in the dictionary.” Vince Lombardi

First things first, February maybe just started, but it has already seen a great deal of volatility around tariffs. The big question I have is, Should we be surprised? It turns out that February in a post-election year is actually the worst month of the year on average, so maybe we are simply due for some volatility? Perhaps.

Hear me out. Maybe it is quite common for the honeymoon period after the election from November – January to be just peaches, but then February comes and reality hits. Or maybe around February is when a President comes out with some of the more controversial policies? Just get them out of the way early and move forward? Whatever the exact reason, the S&P 500 has been down 1.3% on average in post-election years and whether it is higher has been a coinflip, so some volatility or weakness now shouldn’t be a surprise.



Taking this a step further, since 1950, over the past decade, and over the past two decades, the month of February has once again one of the worst months of the year for stocks.



Breaking things down by the full four-year presidential cycle shows the first quarter of a post-election year is one of the worst in the entire four year cycle. Yes, January got off to a nice start, but the calendar isn’t doing anyone any favors right now.



Lastly, the second half of February is historically the banana peel part of the month.



The Super Bowl Indicator
Now with the serious part out of the way, let’s get to the fun part of this blog.

First things first, don’t ever invest based on who wins the Super Bowl. Or what color Taylor Swift will wear at the big game, or the coin toss, or how bad the refs will be (who are we kidding, we know they want the Chiefs to win). With that out of the way, it is Super Bowl season, and that means it is time to talk about the always popular Super Bowl Indicator!

The Super Bowl Indicator suggests stocks rise for the full year when the Super Bowl winner has come from the original National Football League (now the NFC), but when an original American Football League (now the AFC) team has won, stocks fall. Of course, this is totally random, but it turns out that when looking at the previous 58 Super Bowls, stocks do better when an NFC team wins the big game.

This fun indicator was originally discovered in 1978 by Leonard Kopett, a sportswriter for the New York Times. Up until that point, the indicator had never been wrong.

We like to make it a little simpler and break it down by how stocks do when the NFC wins versus the AFC, ignoring the history of the franchises. As our first table shows, the S&P 500 gained 10% on average during the full year when an NFC team has won versus 8.1% when an AFC team has won. Interestingly, the AFC and NFC have each won 29 Super Bowls.



So, it is clear-cut that investors want the Eagles to ground the Chiefs and win, right? Maybe not, as stocks have gained over the full year 12 of the past 13 times when a team from the AFC won the championship, going back 21 years. In fact, the only time stocks were lower was in 2015, when the full year ended down -0.7%, so virtually flat.



By my math, there have been 58 Super Bowls and 22 different winners. I broke things up by franchise and city. For instance, Baltimore has won three championships, but one for the Colts and two for the Ravens. So I differentiated the two. Then the Colts won one in Indy, so I broke that out as well. Either way, I still don’t see my Bengals on here, but I expect that to change next year! Remember, Joe Burrow is the only man who can beat Patrick Mahomes and Josh Allen with a 5-3 record against them combined and a winning record against both, but I digress.

Getting to the two teams in it this year, the Chiefs have won it all four times and stocks gained 15.9%, while the Eagles have won it all only once and stocks fell about six percent back in 2018.



It might not matter who wins, but by how much they win. That’s right, the larger the size of the win, the better stocks do. (Let’s have another disclosure that nearly everything I’m saying here isn’t in any way, shape, or form related to what stocks actually do.)

That’s right, when it is a single digit win in the Super Bowl, the S&P 500 is up less than 7% on average and higher about 62.5% of the time. A double-digit win? Things jump to about 11% and 79%. And wouldn’t you know it, when the final score is three touchdowns or more, the S&P 500 gained 13.6% for the year and is higher about 85% of the time.



Here’s a list of all the big blowouts and what happened to stocks those years. Not too bad, huh?



Who should you root for? Personally, I can’t stand either team, but I guess I’ll just say when Philly wins a Super Bowl or World Series really bad things tend to happen. I’m honestly still not sure I can root for Mahomes and his ref buddies handing him another trophy even knowing this, but it is worth at least knowing.



Here are 12 other takeaways I noticed while slicing and dicing the data:

• The NFC and AFC have won 29 Super Bowls each.
• The past three Super Bowls have been decided by 3 points each, the closest three Super Bowls have ever been in a row (and small enough for a well-timed flag to make the difference).
• The Steelers and Pats have won the most at six, but the 49ers sit at five and the Chiefs could match them with a win.
• As great as Peyton Manning was, he only won two Super Bowls. His brother also won two. Odds are their kids will win a few more. Or maybe a nephew. (We’re looking at you Arch.) Omaha, Omaha!
• The Lions, Browns, Jags, and Texans have still never made the Super Bowl. I tried to tell all my Lions friends it wasn’t happening!
• The NFC won 13 in a row from 1985 (Bears) until 1997 (Packers).
• The Bills made the Super Bowl four consecutive years, losing each time.
• The highest scoring game was 75 total points in 1995 between the 49ers and Chargers.
• The lowest scoring game was only 16 points in 2019 when the Pats beat the Rams.
• The closest ever was a one-point win for the Giants over the Bills in 1993 (the Scott Norwood game).
• Three years ago my Bengals were hosed with a horrific holding call in the endzone at the end of the game to literally hand the Rams the game. The script is real my friends.
• In 1990 the 49ers beat the Broncos by 45 for the largest win ever.

So, there you have it, your complete breakdown for the big game. I’m saying the Eagles, as I can’t believe the NFL would rig another game for the Chiefs with the whole country watching! Have fun and here’s to moving President’s Day to the day after the Super Bowl, one thing we all can agree on!

 

International Dividend Stocks Lag
Thu, Feb 6, 2025

It's been three months since the Presidential election, and in that time the S&P 500 ( SPY) has returned a solid 6.59%. That outperformance has been driven by large cap growth, while value indices have lagged behind. US dividend-focused ETFs have likewise lagged the broad market to a degree, but they are still handily outperforming their international peers. In the chart below, we show the total return of US and International dividend ETFs from multiple families of funds. Of course, each of these ETFs have slightly different methodologies. For example, whereas the SPDR S&P Dividend ETF (SDY) is perhaps the most restrictive, only including stocks that have raised dividends for at least 20 years in a row, others like the Invesco Dividend ETFs (PID and PFM) have easier standards requiring only 5 years of dividend history while the Vanguard High Dividend ETFs (VYMI and VYM) takes the stocks with the highest forecasted yields for the 12 months ahead. Regardless of methodology, there has been a clear distinction between US and internationals save for one US ETF. The SPDR S&P Dividend ETF (SDY) is down 2.5% in the past three months, which is the worst performance of those listed.



As is the case with equities in a broader sense, the recent underperformance of international stocks relative to the US is nothing new and consistent with longer term trends. In the charts below, we show the relative strength over the past five years for US versus international dividend ETFs grouped by their issuer/methodologies. No matter which way it is chopped up, international dividend stocks have underperformed US counterparts for much of the past few years. Currently, those relative strength lines are testing 5 year lows for the likes of the Invesco ETFs and Vanguard High Yield ETFs.

 

The Payroll Report Highlights Both Strengths & Weaknesses in the Economy


The economy created just 143,000 jobs in January, well below expectations for a 175,000 increase, and less than half of the gain in December (which was revised up from 256,000 to 307,000).

Over the last three months, job growth has averaged about 237,000 jobs, which is really strong. However, the payroll numbers are messy right now. For one thing, January could have been impacted by snowstorms in the south and the wildfires in California. We also got significant revisions for the prior couple of years. Total job gains in 2023 was revised down from 3.0 million to 2.59 million, while 2024 was revised down from 2.23 million to 2.0 million. Make no mistake, these are strong numbers, and if anything, it tells us productivity growth was actually better than was reported since GDP growth is still fairly strong. Still, there’s a lot of uncertainty with these monthly payroll numbers, more so than usual.

The good news is that readings that are slightly more resilient to revisions, like the various ratios (since both the numerator and denominator get revised) are still looking quite good. The unemployment rate fell from 4.1% to 4.0%, the lowest since last May. The prime-age (25-54) employment-population ratio, which is a way of controlling for demographic effects and labor force participation issues, is 80.7%. That is higher than at any point during the last two expansion cycles (2000s and 2010s) and not far below the recent peak of 80.9%.

The relatively stability of these numbers tells you that most people are employed, more so than we saw over the past two decades. Hiring has certainly eased over the last two years, but fewer workers are quitting their jobs and layoffs are still really low, so net hiring (hiring net of separations) is strong enough to keep up with population growth.



Ultimately, what matters for the economy is consumer spending, and since that’s powered by income growth, that’s where you want to look. Aggregate income growth, across all workers in the economy, is the sum of employment growth, wage growth, and change in hours worked. Over the past three months, that’s running at an annualized pace of 4%. That is not too far below the pre-pandemic average of 4.6% and tells you that the backbone of the economy is strong enough for now.



Elevated Interest Rates Are Not Helping
We are seeing some weakness when looking at the composition of where job growth is happening. Around 69% of jobs created in January were in health care and social assistance (+66,000) and government (+32,000, of which 23,000 was state/local government). A single month can be noisy, but we’ve seen this pattern play out over the last six months as well. Payrolls have grown by 1.1 million during this period, but a majority of that has come from non-cyclical areas, like health care and social assistance (+442,000; 41% of the total) and government (+198,000; 19%). Job growth in leisure and hospitality (+186,000; 17%) and retail trade (+51,000; 5%) were also significant, but these are less important than fields like manufacturing and professional services if you’re looking for an accelerating economy. Manufacturing payrolls fell by 79,000, while professional and business service payrolls fell by 25,000 over the last six months. It tells you that that cyclical areas of the economy are still struggling to get on their feet and are likely weighed down by interest rates.



The one cyclical area that is holding relatively well is construction, despite the obvious headwind of higher rates. Historically, weakness in construction employment has foreshadowed further weakness across the labor market (and recessions), which makes sense because elevated interest rates (and tight monetary policy) have preceded past recessions. If housing remains weak due to elevated rates, we could see construction employment start to pull back. For now, construction employment is rising at a 2.2% year-over-year pace — still healthy, especially relative to the 1.8% increase in 2019, but the current pace is down from 2.5% six months ago. The slowing pace of growth is something we’ll be keeping a close eye on for the next several months. One notable area driving the slowdown is home improvement, where payroll growth has slowed to 0.6% year over year, versus 1.3% six months back.



The big picture right now is that the labor market is in a relatively healthy place. If you have a job, it’s very likely you’ll keep it, as employers are reluctant to let people go. Workers are also seeing their wages grow at a fairly good pace. However, hiring has certainly eased significantly from a year ago, let alone two years ago, and so if you’re looking for job, it’s not that easy to find one. Employers are clearly being very selective, and perhaps more so in the cyclical areas of the economy like manufacturing and professional services.

But therein lies the challenge of interest rates staying elevated for longer — it’s clearly a headwind if you’re looking for further economic acceleration, especially to achieve something like 3% GDP growth. This is exactly what we wrote in our 2025 Outlook, and the January data underline it. And as I wrote earlier this week, this is where the tariff uncertainty really manifests, as it makes it more likely that the Federal Reserve delays additional rate cuts even longer, as they wait for policy clarity (let alone the impact of these policies). Meanwhile, the hope is nothing breaks before that.

 

Usual February Weak Trading

Stocks are suffering from typical midwinter struggles. The market tends to rally the first half of February, but gains tend to fade after mid-month, and even sooner in post-election years.

 

Five Worries We Have That Aren’t Tariffs


“Sometimes the questions are complicated and the answers are simple.” -Dr. Seuss

Yes, we’ve remained in the bullish camp for more than two years now and continue to expect 2025 to see stock gains between 12-15%, but that doesn’t mean we don’t have worries. Of course, like everyone else, tariffs are indeed a big worry (with a huge amount of uncertainty), but we’ve spent enough time on those over the past week and today I’ll go over a few other worries that I’m watching closely.

Year Three of a Bull Market
We noted this in 2025 Outlook: Animal Spirits. Stocks usually see huge gains the first two years of a bull market (just like this bull market did) and the third year can be more choppy and frustrating. Although we expect stocks to do much better than the average third year gain of 2.1%, this is still something to consider in 2025 as a potential issue. End of the day, after the huge gains we saw two years off of the October 2022 lows, it would be perfectly normal to see some consolidation at some point in 2025.



The Philly Curse
This is purely fun, but when a team from the City of Brotherly Love wins a World Series or Super Bowl, very bad things are around the corner.



Lagging Advance/Decline Ratios
An advance/decline (A/D) ratio is simply a cumulative tally of how many stocks go up or down each day on a specific exchange. The way I learned it many years ago was breadth leads price. When A/D lines make new highs, it suggests the indexes will likely continue a bullish phase. We saw A/D lines break down well ahead of the tech bubble bursting 25 years ago and again before the Great Financial Crisis, suggesting there indeed was deterioration under the surface.

Yes, we have many stocks doing well this year (even international and emerging markets are joining the party), but one worry I have is various A/D lines have yet to breakout to new highs. There is still time here, but I’d classify this as a yellow flag for the bulls right now. Should these improve and eventually breakout (like I predict), then the bull would be back in a big way. Here’s a nice chart my friend Cam Hui shared recently showing exactly what I mean.



Year of the Snake
Another fun one (and please don’t ever invest based on this) is stocks have done quite poorly in The Year of the Snake, which is exactly the Chinese zodiac sign for 2025. Similar to when Philly wins something, this is totally random, but it is interesting.



The December Low Indicator
Last and certainly not least, here’s one of my favorite indicators. This is called the December Low Indicator and it is fairly straightforward. When the S&P 500 doesn’t close beneath the December low close in the first quarter, good things have tended to happen the rest of the year. The opposite, of course, is when the December lows are violated in the first quarter. To refresh your memory, the past two years they didn’t break the December low and those were great years, while a break in early 2022 was one subtle clue that the odds were elevated that the rest of the year could be dicey. Well, sorry to be the bearer of bad news, but stocks indeed broke their December low about a month ago.

Interestingly, since 1950, stocks held above the December lows 38 times while they broke the lows 37 times. Talk about even-steven. Those are some pretty big sample sizes, and sure enough, the takeaway from the historical results are very clear.

Those 38 times the December lows held? The full year was up an incredible 36 times and up an average of 18.9%. The times it failed? The full year was down 0.2% on average and higher less than a coin flip.



If you want to investigate things more closely, here are all 38 times the S&P 500 held above the December lows. Hard to look at this any other way than in the years this has happened, it was a major clue the bull was alive and well.



Here’s the other side to things and unfortunately where things stand in 2025. What happened when the December low was violated? Once again, the full year returns were plain and simple much weaker. Just a quick glance and some of the worst years ever saw the December lows broken. Years like ’73, ’74, the tech bubble, ’08, and ’22 all made this infamous list. This doesn’t mean 2025 will be like those years. Still, this is one thing that undoubtedly is in my worry column.



So there you have it, some worries I have that have nothing to do with tariffs. I’ll be honest, it was nice not to talk about tariffs for a change.

 

DC, We Have a Problem


Over the last two years, markets have been able to tune out a pretty dour national mood, with the S&P 500 gaining 25%+ in 2023 and 2024. In fact, real GDP growth clocked in at 2.9% annualized over the last two years, above the pre-pandemic trend. Sentiment was downbeat, but this didn’t really crimp consumer spending. In our 2025 Outlook, we wrote that we expected this momentum to continue into 2025, with a potential boost coming from a turn in the national mood, i.e. “Animal Spirits.” We weren’t exactly calling for unleashing of these animal spirits but saw an opportunity for it to materialize. Well, we’re now close to Valentine’s Day, and animal spirits are yet to show up. Ryan wrote about a few market-based indicators that are flashing a yellow sign (beyond tariffs and the Eagles winning the Super Bowl!). Beyond those, the surveys are also not showing a pickup in confidence.

The University of Michigan Index of Consumer Sentiment pulled back over 3 points in February, falling to 67.8. That’s the lowest level since last August, and more than reverses the post-election bounce. The index is currently sitting well below the lows we saw during the height of the pandemic in April – May 2020. Another consumer confidence measure released by the Conference Board tells the same story. We have yet to get updated February numbers, but it fell 5.4 points in January to 104.1, the lowest level since last September.



Consumer expectations of their financial situation have risen significantly over the past year, but they’re still well below what we saw pre-pandemic and we haven’t seen a post-election surge in optimism about the future. Via a household survey from the New York Federal Reserve:

• 6% of respondents expect finances to be “somewhat better off” or “much better off” a year from now — higher than 34.2% a year ago, but below the 42.9% in February 2020.
• 21% expect finances to be “somewhat worse off” or “much worse off” a year from now — down from 23.5% a year ago, but well above the 10.5% in February 2020.
• The difference between the two was 15.6%-points — better than the 10.6%-point difference a year ago, but well off the 32.4%-point difference in February 2020.

Expectations appear to have plateaued, and simply put, that’s not great for animal spirits.



It looks like uncertainty over regulations and tariffs are hitting business confidence and outlooks as well. 146 out of 302 S&P 500 companies have referenced tariffs in their earnings calls so far, the most since Q2 2019. Most of them have yet to quantify the impact of it in their guidance, but that underlines the uncertainty, since we don’t have much clarity around tariffs. Half of the companies that reported also brought up currency issues in their earnings calls, saying that a strong dollar is putting pressure on overseas revenues (40% of S&P 500 company revenues originate outside the US). This is a risk we highlighted in our Outlook, i.e. a strong dollar (on the back of elevated rates and tariff rates) threatening S&P 500 profits.

A recent WSJ piece highlighted that tariff news (and whipsaws) have hit business leaders’ confidence. Priorities have shifted now to navigating tariffs and other policy issues, including settling new supply routes. They have to decide whether or not to raise prices, and remember, all this is before we have any idea of eventual policy that will be implemented (or lack thereof).

Uh, Oh Inflation
The consumer price index (CPI) rose 0.5% in January, above expectations, partly driven by a massive 15% increase in egg prices in just one month. Egg prices are up a whopping 53% since last year, thanks to a worsening bird flu situation. Even Waffle House went so far as to explicitly add an egg price surcharge of 50 cents on their menus. Energy prices have also crept higher, rising 1.1% in January. It’s still up just 1% since last year (gas prices are actually slightly lower), but households are never happy when energy prices go up, along with food prices.



Consumer expectations of inflation, as measured by the frequently cited University of Michigan survey, surged in February. One year ahead inflation expectations rose to 4.3%, the highest since November 2023 and only the fifth time in 14 years we’ve seen such a large 1-month increase. Five-year ahead expectations didn’t see a similar surge, rising from 3.2% to 3.3%, but even that is well above levels we saw before the pandemic.

Now one big issue with this survey is that it’s “contaminated” by politics. If you separate 1-year ahead expectations of inflation by party affiliation, this is what it shows:

• Democrats: 5.1% (up from 1.5% in October)
• Republicans: 0.0% (down from 3.6% in October)

In short, Democrats are expecting a big surge in inflation, whereas Republicans appear to be expecting a deflationary recession, which would be the scenario under which inflation hits 0% (though people who answer the survey probably don’t realize it’s an implied recession call).

Expectations for independents may hold a bit more signal here. They expect 1-year ahead inflation to be 3.7%, the highest level in a year. Usually, you see this kind of move only when gas prices surge, but nationwide average gas prices have risen just 10 cents to $3.14 since the beginning of the year. More likely, it’s the uncertainty about tariffs.



At the same time, a more robust survey from the New York Federal Reserve shows a more benign picture of inflation expectations. The sample size for this survey is larger, amongst other robust methodology choices. This survey showed that median 1-year and 3-year ahead inflation expectations were unchanged at 3%. That’s not too far above what we saw in 2019 (when it averaged about 2.5%). Still, things are on the upper edge of what would likely be comfortable for the Federal Reserve, which pays close attention to inflation expectations and see it as a key potential driver of future inflation.



Market expectations of short-term inflation expectations have also been rising recently. 1-year ahead inflation expectations have moved up to 2.8%, the highest since March 2023. I also calculated 1-year/1-year forward inflation expectations, which is inflation expected in the second year from now (roughly 2026). That’s risen to 2.7%, the highest since November 2022. “Normal” levels, at least going back pre-pandemic levels, were around 2.2-2.3%. Again, as I pointed out above, this is not because of higher oil prices (which have hovered in a fairly tight range recently). Instead, this is likely where the tariff uncertainty is being manifested. Interestingly, we didn’t see a similar increase in 2018 – 2019 amid the trade war, but this time around markets may be sensitive to the fact that we’re in a generally higher inflationary regime.



The good news is that longer-term inflation expectations, which is what the Fed cares more about, are consistent with their 2% target, though embedded into these is the expectation that the Fed will have to keep rates higher for longer. And that gets to the January CPI report, which was hot across the board on both headline and core measures (which excludes food and energy). Yet, the big picture is that inflation remains elevated due to lagged shelter and motor vehicle insurance data. Within shelter, it’s really owner’s equivalent rent (OER) that is problematic (the ”implied rent” that homeowners pay, which is based on market rents rather than home prices). OER makes up a big part of the CPI basket, as you can see in the table below, and it’s adding 0.44%-points to excess CPI and 0.54%-points to excess core CPI (excess relative to December 2019). Motor vehicle insurance is adding the rest of what’s excess for both headline and core CPI, while all the remaining categories are neutral.



We’re going to just have to wait for the disinflationary housing trends that show up in more real-time private measures be reflected in the official data. The problem is that this is going to keep the Fed on hold too, as they wait for official inflation data to get closer to their target. Again, the tariff situation only adds to this sense of uncertainty. Markets now expect the first rate cut only in July, with just about coin toss odds for a second cut in 2025. That’s still better than expectations for no cuts at all in 2025, but if the markets start to sniff out that no cuts are forthcoming in 2025, expect more volatility.

All in all, the mood seems dour, whether for consumers, businesses, or even at the Fed. That’s not what we need for a lift in animal spirits. It doesn’t mean the economy will go into a recession — we still believe underlying strengths will overcome some of these headwinds. But it could be the difference between an ok year versus a great year. And it’s not over yet by any means. Positive news on the tariff side, plus progress on a tax bill in Congress, could lift spirits. But that needs to happen first.

 

Longer-Term Weakness on Tuesday after Presidents’ Day Returns

Following a six-year streak of strength from 2012 to 2017, the market appears to have returned to its longer-term trading pattern on the Tuesday following the long Presidents’ Day holiday weekend. S&P 500 has been the weakest on Tuesday, down 6 of the last 7 with an average loss of –0.63%. DJIA and NASDAQ have one additional positive day, but their respective average losses exceed S&P 500 at –0.71% and –0.69%.

Going back to 1990, Tuesday after Presidents’ Day has been strongest for the S&P 500 with 18 gains and 17 losses with a median gain of 0.07% but with an average loss of –0.30%. DJIA is slightly weaker on the Tuesday after, but NASDAQ is a net loser down 22 of 35 years with an average loss of –0.57% and a median loss of –0.34%.

Wednesday is all red for all three major averages. NASDAQ and S&P 500 have more losses, but DJIA is a loser as well. On the Wednesday after the Presidents’ Day holiday DJIA is down 18 of 35 with an average loss of –0.10% and a median decline of –0.10%. S&P 500 is down 21 of 35, average –0.07%, median –0.10% and NASDAQ is down 20 of 35, average –0.11%, median –0.18%.

 

Post-Election Year Q1 Weak Spot Volatility Happens

China’s DeepSeek AI panic is just another trigger for a market selloff in the Q1 weak spot of Year 1 of the 4-Year Cycle. Following the solid gains of typical pre-election and election years, the flat to mildly negative Q1 of post-election years is a notable transition. Breaking the 4-year cycle down by quarterly performance in this bar chart gives a clear view of Q1-post-election-year weakness.

Potential reasons for this lull in the 4-year cycle are numerous, but the uncertainties of a new administration coming to Washington, D.C. are high on the list. The obvious reset of the cycle is a strong possibility. Two years of solid gains, fueled by election spending, result in elevated market valuation. This combination of big gains and an uncertain outlook has led to profit taking in the past and it is playing a role now. Not to mention economic, geopolitical, and monetary policy concerns.

But prospects for 2025 remain encouraging. Post-election years have improved since WWII and since 1985 DJIA averages a gain of 17.2% with eight up years and two down. This is the best average gain of the four-year cycle over this period. Despite today’s selloff my Base Case 2025 Forecast scenario is still the most likely with full-year 2025 gains of 8-12%. But gains are not as likely to be as free flowing as they were over the past two years and volatility is likely to remain elevated.

 

February Monthly Options Expiration: Bullishness Fading

February’s monthly option expiration week has had a bullish lean over the past 31 years, but it has faded over the last five years. Weekly average gains fall in a range of 0.26% by S&P 500 and NASDAQ to 0.42% by DJIA. Based upon the number of positive weeks, DJIA has the best track record. From 2006 through 2019, S&P 500 was up 12 of 14, but has been down the last five straight during February’s monthly expiration week. Monthly option expiration Friday and the week after have a bearish record with average losses over the last 31 years.

 

Streaky
Mon, Feb 24, 2025

Lost amid all the selling in equities last week was the fact that crude oil and gold both closed out the week with significant streaks of losses and gains. For crude oil, last week's decline of 0.5% was only modest, but it extended the current streak of declines to five weeks in a row. As shown in the chart below, this is the longest streak of weekly declines for black gold since December 2023 and just the 26th losing streak of five or more weeks since 1985.



Ironically, even though crude oil is down five weeks in a row, the total decline has been less than 10%. The ETF that tracks crude oil - USO - was near a 52-week high earlier this year, but even after the recent declines, it closed out last week right in the middle of its trading range and sandwiched between the 50 and 200-day moving average. Coupled with some of the weak economic data, though, the weakness in crude is adding to concerns that the economy is slowing down.



Unlike crude oil, which has been moving lower, gold has surged. Last week capped off the eighth straight week of gains, which is the longest winning streak since July 2020. Additionally, since 1985, there have only been five other streaks that lasted eight or more weeks and only three lasted longer.



A look at recent trading in the Gold ETF - GLD - shows that a ninth week of gains may be harder to achieve. As the price of gold has surged, the rally has taken its price to the top end of its trend channel that has been in place since last spring. That doesn't mean it can't keep rising, but it just illustrates how extended gold has gotten on a short-term basis.