by Ivan Martchev
May 13, 2025
It seems to me that the higher the market goes, the more bearish investors become, which seems very odd, at the least. If you are bullish, you are probably in the minority, but this pervasive bearishness is ironically good for stocks. Obviously, we can’t keep going up at the same rate, and some backing and filling would be normal. In fact, some say that announcing a Chinese trade deal or massive de-escalation would be a sell signal. It sure can create a pullback, but that would be normal after a 14% recovery in a few weeks.
I think a lot of people that sold in a panic in early April have not bought back yet, and if there is no recession here and abroad, they will be chasing the market higher this summer. Selling in May and going away is not likely to work this year, as that seasonality is working in reverse due to the abrasive action of the Trump administration on the trade front, which they say is the only way to remedy the situation.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It is possible that we will revisit the lows, making a lower low as part of the worst-case scenario, where the trade deal takes a long time to work out and the economic numbers deteriorate significantly. But if the trade deals come faster than expected and the slowdown in the U.S. economy is minimal, we have already seen the lows – what I would call the best-case scenario, where the S&P 500 has already bottomed out. It would be very similar to the bottom we hit last August, as we zoomed higher into the end of the year.
If this is indeed a “head-and shoulders” bottom formation (as indicated on the chart above), it points to a target for the S&P 500 by year end of 6,600. The head and shoulders bottom formation from last August indicated a target of 6,100, which we hit within one point – at 6,099 in December of last year.
If you think that stocks can’t go straight up, look no further than at the German DAX Index (charted below), which registered a fresh all-time high on Friday. If we are living in the middle of a global trade war, what is the DAX doing at a fresh all-time high, since Germany’s main index is even more exposed to international earnings than the S&P 500 is, with nearly 80% of its earnings coming from abroad.
In other words, if there were a recession coming in the U.S., the DAX should not be at an all-time high.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Germany has a more competent CDU-led government and is likely to benefit from massive stimulus as well as defense spending, which the Trump administration has largely encouraged by reminding Europe that they are not living up to their NATO-obligations. It is commendable for the Trump administration to make clear to the Europeans that if the U.S. is to pay dearly for European security, it expects to be treated fairly when it comes to trade. For years, the EU has taken advantage of the U.S., and this may end soon.
Europe is likely to see further gains if the Ukraine war comes to a halt this year and if a trade deal with the EU can be finalized. There is already a framework for a trade deal with the UK (a former EU member) and perhaps this deal will serve as a guide for EU trade negotiations.
As I write this (on Sunday), U.S. Treasury Secretary Scott Bessent is in Switzerland negotiating with the Chinese on de-escalating the trade tensions. Unfortunately, no details of what was agreed on were shared with the public yet, and a statement was made that the complete briefing will come on Monday. Until a final agreement is reached, my guess is that some decrease in tariff levels is to be expected on both sides.
If the trade deal news flow improves and U.S. economic data holds up, the S&P can easily reach 6,600 by year end, if not 7,000, based on how successful the Trump administration is with its tax reform strategy and deregulation, which are seen as fiscal stimulus by most investors.
It would appear that President Trump made a conscious choice to execute a “maximum pain” strategy early in 2025 so that he can focus on more market-friendly policies going into a mid-term election year.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
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Ivan Martchev
INVESTMENT STRATEGIST
Ivan Martchev is an investment strategist with Navellier. Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev
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