July 2025 Market Strategy
Three years? Nope. Three months? Dope.
I have been bullish for all of 2023 and most of 2024 and pounded the table with dozens of macro articles supporting that point of view, even and especially before it was popular cheer on this bull market. I was proven correct. In December 2024, I turned bearish. That aged well in March and April of this year.
Since then, reading this market has been difficult for me. I still stand by my bearish points which will likely take some time to ripple through markets if proven on point. However, the swift derisking in institutional portfolios when the tariff drama started has been a headache for me because it’s such an obvious pain trade that needs to unfold before we can see another leg down.
I believe I owe you a directional opinion with every monthly market strategy piece. But in my June 2025 Market Strategy I didn’t feel able to give you one. Instead, I simply listed all bullish and bearish arguments for your consideration. Let’s check whether the picture has become clearer since then.
TLDR Summary
The odds favor a continuation of the current rally in the near-term. Economic growth is still robust and there is a rebound in withheld tax receipts. Deficit spending is still going very strong without any signs of slowing down. I don’t see an inflation problem which will allow for more rate cuts soon, which Trump heavily favors. He will get his will, with or without Powell.
These rate cuts likely won’t be helpful for liquidity creation, but they can improve sentiment to help complete the capitulation of institutional investors that are currently being forced to chase US and Tech stocks. We saw a similar sentiment driven rally on weakening fundamentals in 2019.
Once that capitulation is complete, I see downside because I believe we need a larger unwind of the Fed SuperCycle, namely a rerating of US stocks to a lower growth environment and a rebalancing of global investment flows. The time to bet on that is however not now.
It’s worth noting that I am personally not investing at this time. Some of that is due to personal circumstances, but it is also a reflection of my discomfort with this market. Building dry powder feels like a better choice for me. There will be better opportunities in the future. I have trust in my patience and my ability to spot those opportunities.
It feels weird to be in this limbo which is unprecedented for me, but I also feel blessed to some extent. Managing a fund with a benchmark to beat must be excruciating right now. If you don’t make (what I consider to be) reckless moves, you will almost certainly underperform.