12:00 TUESDAY – Investing Insights #255 – 02/25/25

by Robert Holman, CFA CFP | www.DefensiveAdvisor.com

STOCK MARKET RATING (THE BIG PICTURE) … CHANGE TO 5.0

(1 - 4 is bearish, 5 is neutral, 6 - 9 is bullish). The market is flat compared to inauguration day, and only 3% higher since the November election.

Worries abound, and daily market action is jumpy and schizophrenic. Worry over whether we have a favorable or unfavorable trend in so many important issues - international tensions, tariffs, inflation rates, earnings, congressional voting, court cases, jobs, and interest rates - are evident in daily trading patterns. Big down days are followed by big rebound days as various concerns turn out to be either big deals or no longer of concern.

Here is an example – will government layoffs be more than private sector job additions? Will the deficit and the economy expand or shrink? Will savings from lower government spending be significantly more than lower consumption from layoffs? How much more? To what extent will the legal wrangling impede spending reductions? What will happen to the rate of inflation and the level of interest rates? And, so it goes.

Without a definitive “enormous” economic event (for lack of a better word), this appears to be a “pause-driven slowdown” phase of the uptrend. However, the results of executive orders, congressional voting, and court actions could surprise investors and lead to an “expanded pause phase” (for lack of a better word), which could then lead to a 10% correction, before things get resolved and settle down. Or, none of that may happen. Hence, we will almost surely experience a continuation of this “wait-and-see pause” in investor activity for at least the next several days, awaiting the results of these critical issues and their expected economic impact. We can proceed once the unknown becomes known.

There is just a lot going on about the interplay between the power of the executive branch versus the power of the legislative branch versus the power of the judicial branch.- and investors are skittish until this all gets worked out.

The DJIA and the S&P 500 peaked in the 1st week of December and might have peaked again in the 3rd week of January. The NASDAQ peaked in mid-December and might have peaked again in mid-February. The NASDAQ has been negative for 4 days in a row. It will take a few more days for the market to receive clarification.

In addition to the above, much depends on what happens Thursday and Friday after NVDAs earnings are reported Wednesday after-market.

In Fed Chair Powell’s speech last week, some of his remarks were interpreted as being favorable for bonds. So, big money (life insurance companies and other institutions) began selling stocks and moving that money into bonds. The retail investor is now scared and there is evidence that they have been net sellers. This rebalancing could last a few more days, possibly weeks. After that, we will be looking for a rebound - that may or may not materialize, see above – and we will be looking for a net gain of 8-12% before year-end, resulting from new policy direction before year-end.

Meanwhile, I’ve updated work on my database of about 150 stocks. The ongoing work resulted in more than a dozen stocks with favorable “buy” characteristics (using my rating system) and a lot of stocks that look boringly dull. I’m looking for a convincing signal that would lead me to take action, while assessing the risk/reward ratio of buying/selling soon versus observing for a bit longer

I’m staying neutral, although I’m ready to change course either way should conditions deteriorate or improve. In a “fully valued market”, tasks like stock picking, assessing business conditions, searching out-of-favor groups, and avoiding foreseeable risks are often the route to achieving excess returns. Hopefully, the days immediately ahead will end up being good days of opportunity for us. But I am staying away from making new commitments, until there is more clarity.

io hope this newsletter clarifies for you what is going on in the market, we hope you have found uncommon wisdom herein.

PORTFOLIOS … After reading this report, if you are unsure how to respond to these conditions, you may send a Secure Email message from my website, and I’ll reply with the information you need.

TO MY CLIENTS … THANK YOU AGAIN FOR YOUR TRUST.

WEBSITE: www.defensiveadvisor.com

LEARN FROM THE BIBLE … Proverbs 15:22 MSG - Refuse good advice and watch your plans fail; take good counsel and watch them succeed.

This report is a 3-4 minute read, published every other Tuesday afternoon, usually around noon. To sign up for this bi-weekly e-Newsletter, go to: http://www.defensiveadvisor.com/blog.

Opinions in this post are for general information only and are not intended to provide specific advice to, or recommendations for, any individual without our complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss. Nor does past performance guarantee future results.