Haymaker Friday Edition
Haymaker Friday Edition
Tough Love From the Tough Down Under
Hello, Subscribers!
America these days is making big moves and big splashes, domestically and abroad. What’s true in physics, is true in markets — action yields reaction. There’s just a lot a less guesswork in physics. The interplay of tariffs, politics, consumer sentiment, and renegotiated trade agreements means that while the actions might be bold, the reactions are downright chaotic, or at least impossible to anticipate.
Making sense of the situation so you don’t have to is Haymaker friend and Downunder Daily progenitor Gerard Minack, who has formulated a series of analyses based on real-time developments and historical patterns. The fact that market sentiment and fundamental macroeconomics have drifted out of one another’s orbit might not come as a surprise, but the implications that reality could foster are worth paying attention to.
Savvy investors know that bear markets don’t move in straight lines, and the 2007–2009 crash was a masterclass in this. Between October 2007 and March 2009, the S&P 500 staged multiple rallies — some as large as 20% — before finding its true bottom. Every bounce looked like a reversal. None were.
What made those rallies so dangerous wasn’t just their size — it was the timing. Each one occurred while the real economy was still deteriorating. Sentiment stabilized briefly, capital flowed back in, and then the floor dropped out again. Only once the recession was fully priced in — both economically and psychologically — did a durable recovery begin.
Fast-forward to today, and the setup is uncomfortably familiar.
Soft data is rolling over: consumer confidence, CEO outlooks, investment intentions — all in decline. Tariffs are tightening financial conditions faster than rate hikes. Inflation expectations are sticky, which handcuffs the Fed. And yet, equities are hovering near cycle highs. Valuations have compressed, yes, but not to recessionary levels.
This is not unusual. Markets rarely price in recession before it’s official. As Gerard observes in his analysis, the S&P has never made a cycle low ahead of the onset; on average, it bottoms 4-7 months after the recession starts. If we’re on that path now — or already in it — then history says the current strength is a mirage, or a dead cat bounce.
More on this from Mr. Minack below. Enjoy!
US markets have not priced in a recession
By Gerard Minack (Originally published April 21st, 2025)
Soft data are rolling over hard in the US. It seems clear that the shock of higher tariffs and the chill of tariff uncertainty – if sustained for even a few months – will push the US into recession. Markets have not priced that outcome. If there is a recession, the Fed will cut more aggressively than short rate markets now imply. Equities have never made their cycle low before the recession onset. Moreover, while equities have derated, they do not look cheap. History shows that more expensive markets tend to have larger recession drawdowns…
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