April 2025 Market Outlook

2025 Market Outlook Uncertainty

By Dan Hassey and David Frasher

Wed Apr 30 2025

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Section 1: Introduction

In my WSJ 2025 Economic Survey and Forecast Outlook, the main economic concern is the uncertainty of Trump 2.0. Uncertainty was also the core message of the 2025 UCLA Economic Forecast (click here to review research, Outlook). In my November Market Outlook, I came up with the same conclusion: there is too much uncertainty to make a forecast. (Click here to review my November Outlook, research).


The last section of this outlook is a review of Trump 2.0 from the research that I’ve done. There remains uncertainty because of the ambitious nature of Trump 2.0 and how it could change the U.S. and the world, especially economically.


Below is a chart that shows the market action during Trump 1.0:

Let’s review the chart:

  1. There was a Trump bump (First Rectangle) when President Trump won the Presidential election in November 2016. Investors turned optimistic with a business man as President and the prospects for tax cuts and reduced regulations.


  1. Markets rallied again when the President’s tax cuts were passed toward the end of 2017. (Second Rectangle).


  1. In 2018, 2019 trade wars occurred especially with China. This caused increased market volatility. (Third Rectangle).


  1. Covid happened at the start of 2020, and the shutdown of the global economy caused the global economy and markets to collapse.


  1. With the shutdown of the global economy that almost caused a global depression the administration issued trillions of dollars of support and aid to workers, and some institutions such as libraries, museums… to help them financially get to the other side of the pandemic. They made the choice of potential inflation versus a potential depression. The Biden administration also provided trillions of dollars of aid and support.


Below is a current market chart for Trump 2.0

There are many differences between Trump 1.0 and Trump 2.0. In Trump 1.0, the tax cuts that gave the economy a bump came first. The economy in 2018 was on a stronger footing allowing the trade wars, especially with China. The tax cuts from 2017 sunset next year and a new tax bill will be introduced later this year. This means work on tariffs comes before the new tax bill and unfortunately, the global economy is weaker.

Some economists and analysts are forecasting stagflation (a stagnant economy with inflation)/ a recession. The markets are trying to adjust to the potential weakening of the U.S. and global economies.

The market is trying to find a bottom, participants have bought the latest bottom.

If we have a bear market, at least a 20% decline from a previous high, the market could pull back to 4,920 [(6150 peak x 100% peak)- 20% loss].

The President and his economic team admit there could be “some short-term pain”. During this transition period. Again, more on the goals objectives of Trump 2.0 are at the end of this Outlook.

Valuations

I’ve written about the need for a “margin of safety” when investing. Graham and Dodd’s seminal book Security Analysis has the best description of the “margin of safety”. This means focusing on the fundamentals of a company especially valuations, liquidity, debt, profit margins…

The P/E is around historical highs. The P/E is a good, simple metric to determine valuations. It tells how much investors are willing to pay for a dollar of earnings.

Here are the P/Es for the markets:

Source: WSJ

The Dow 30 P/E is around 19.70 and the S & P’s P/E is about 21. Below is a historical chart of the P/E. The average is about 15.62. Today’s P/Es are significantly higher. Historical investors have paid about 15.62 for a dollar of earnings. Today investors are willing to pay about $21 for a dollar of earnings.

Notice the decline in prices for both indexes. The S & P then was over 22, the index was overvalued with no margin of safety.

Here is the historical trend for P/Es:

Source: Macrotrends

The historical average P/E is around 15.62, much lower than current P/Es.

At the start of the year, the S & P’s consensus 2025 earnings forecast was 280. Currently, it has fallen to around 265.

If we use an average P/E, then the S & P should be valued at around 4,240 (16 P/E x 265 earnings estimate). If we use a market multiple of 20, still too high, the market would be priced around 5,300. The S & P is currently around 5,633. These are estimates and they would have to be adjusted depending on actual earnings and future earnings guidance. There would be a small margin of safety using a P/E of 20.

Plans, Goals and Objectives of Trump 2.0.

If the plans/goals of Trump 2.0 are successful, we could see:

  1. A balanced budget
  2. Pay down debt
  3. Bring back manufacturing and high paying jobs
  4. Lower inflation and interest rates
  5. Prosperity among all income levels
  6. Lower taxes for all income brackets


It will be great for the economy if Trump 2.0 is successful. The plans are ambitious, will take many years to accomplish, and are risky. Most analysts think the plans won’t work, especially before next year’s midterm elections.

What are the plan's objectives?

The financial news has mentioned President Trump and President McKinley several times. In his January 20 2025, inauguration speech President Trump mentioned President McKinley:


“President McKinley made our country very rich through tariffs and through talent — he was a natural businessman — and gave Teddy Roosevelt the money for many of the great things he did, including the Panama Canal, which has foolishly been given to the country of Panama after the United Spates — the United States — I mean, think of this — spent more money than ever spent on a project before and lost 38,000 lives in the building of the Panama Canal.

We have been treated very badly from this foolish gift that should have never been made, and Panama’s promise to us has been broken.”

A BlackRock infrastructure consortium has entered an agreement to acquire the Panama Canal ports, so action by the Trump administration could be minimal. China has delayed the $23 billion sale.

I did an AI search for McKinley and here is the response:

It seems Trump 2.0 wants to emulate President McKinly: 1. Tariffs 2. Expansionism (Greenland, Canada, Panama Canal) 3. Make crypto part of our Treasury

An article from Bloomberg What’s Behind Trump’s Tariff on Canada, Mexico and China. Here is an excerpt explaining Trump 2.0 tariffs :

“Scott Bessent, Trump’s treasury secretary, provided clues about how his boss might employ new tariffs during his confirmation hearing in early January.

Bessent, a former hedge fund manager who helped his former boss George Soros bet against the currencies of other countries, told senators that people should expect Trump to use tariffs in three ways: to remedy unfair trade practices (which Trump has said would revitalize American industry), to raise revenue for the federal budget (important to help pay for Trump’s plans to extend his 2017 tax cuts), and to use as a lever in negotiations with foreign powers in place of sanctions, which Trump believes have been overused.”

I believe after learning about President McKinley the tariffs are for revenue raising and will be permanent.

The main objective is to use tariffs to bring in money to: 1. Replace the IRS with the External Revenue Service 2. Use tariffs to extend the 2017 tax cuts 3. Balance the budget 4. Reduce the $35 trillion national debt.

Again, this could be very good for the economy and U.S.

Tarriff Risks:

  1. The world is very different from 1890 and so is the U.S. The British pound was the world reserve currency in 1890. We are now the world reserve currency. See Mar-a-Lago Accord section below. Also, because of air travel and communications, we have a smaller world. News and reactions happen very quickly. Will this be successful, similar to McKinley or the Smoot-Harley Tariff Act of 1930? Here is a response from AI about Smoot-Hawley:

“The Smoot-Hawley Tariff Act of 1930 is widely remembered as a policy that deepened the global economic malaise during the early years of the Great Depression. While it wasn’t the sole cause of the Depression, its outcomes played a significant role in exacerbating economic difficulties both in the United States and worldwide.”


  1. Retaliation, I don’t think Trump 2.0 thought much about the retaliation from our trading partners. Will there be tit for tat similar to Smoot-Hawley and its trade wars? This could push the global economy into a recession.


  1. Will take years to accomplish this vision, see Mar-a-Lago Accord section below


  1. What happens to the dollar? See Mar-a-Lago Accord section below


  1. Will our trading partners still fund our national debt, deficits?


  1. What happens to Medicare, Social Security, if there are no taxes, only tariffs?


  1. What happens if this vision or plan does not work?


  1. Extended tax cuts is basically trickle-down economics that has proven not to work


The image below proves trickle-down economics does not work according to the CBO.

If you spend a dollar on corporate tax cuts you get less than $1 back. Tax cuts to high-income earners are only slightly better. There are better ways for effective monetary policy.

Below is an image that shows what corporations did with their tax cuts:

Source: BusinessWeek

Below is an image that shows who benefited the most from the 2017 tax cuts:

Source: BusinessWeek, CBPP

The other tax cuts (overtime, tips, Social Security) could help the average American if these cuts could be included in the new tax bill expected later this year. If not, voters could really be mad that all these changes and chaos will not help those that need it the most.

Also, most of the taxes the average American pays are for their Social Security and Medicare (FICA). Many will get back the FICA taxes when they retire with Social Security and Medicare benefits. End of life Medicare expenses are very high which means some will get more than what they paid in.

PROJECT 2025

https://www.project2025.org/

Project 2025 is another controversial plan that is being implemented. Below is an AI summary of Project 2025:There are many issues that I have with this “project”, but since most of it is not economic, I will skip my comments.

The Mar-a-Lago Accord

https://fortune.com/2025/04/01/trump-tariffs-mar-a-lago-accord/

Here are some excerpts from the Fortune article:

“Trump’s trade and tariffs policies are flawed and contradictory—and the ‘Mar-a-Lago accord’ is suited for the trash bin”

President Trump’s trade war is a stark departure from traditional U.S. trade policy. His journey off the beaten path has given rise to whispers of a new order of global finance and trade, what some are dubbing the “Mar-a-Lago accord.”

What do we know about that accord so far? For one thing, we know it is the brainchild of the president and two of his top economic advisers: Treasury Secretary Scott Bessent and Stephen Miran, who chairs the Council of Economic Advisers. Indeed, last year Bessent said that he would “like to be part of…Bretton Woods realignments.” But the best snapshot of the Mar-a-Lago accord we have to date is a paper published by Miran last November titled “A User’s Guide to Restructuring the Global Trading System.” In essence, the accord is a program whose intended purpose is to restore American production and employment by devaluing the dollar and imposing tariffs on foreign goods.

Unfortunately for President Trump, the alleged accord is full of contradictions. Right off the bat, the policies of tariffs and dollar devaluation themselves are contradictory”.

If you Google Mar-a-Lago Accord, there are several articles on the subject. The above Fortune Magazine article is critical of the Accord. A Morningstar article goes into detail explaining the Accord. Click here to read the Morningstar Accord article. Here is an excerpt from the article:

“Essentially, the deal would seek to recruit - or strong-arm by dangling access to American markets, or the American security umbrella - America's biggest trading partners and creditors into an arrangement that would see them work in concert to weaken the U.S. dollar, lower American borrowing costs and encourage more manufacturing-related investment in the U.S. - all while preserving the greenback's primacy on the international stage.

The main focus of the deal is the dollar DXY. Although the greenback has softened since the start of the year, it is still trading around its strongest level since the mid-1980s on a trade-weighted basis, according to Steve Englander, the global head of G-10 currency research at Standard Chartered. “

A weak dollar makes our goods cheaper for exports (other currencies can buy more of an American good). But a weak dollar could cause more inflation because a weak dollar makes foreign goods more expensive for consumers and businesses.

As mentioned above, tariffs do not take into account retaliation that could lead to trade wars and a recession. The world has barely recovered from covid and the invasion of Ukraine by Russia. The U.S. and global economy are vulnerable to a slowdown/recession because of the confusion, uncertainty and rising costs will cause companies and their investors to be cautious regarding capital deployment and spending.

Economists and analysts are starting to realize that the U.S. is basically the only country that tries to practice free markets and free trade. They believe there needs to be a realignment of the global economic order.

What took decades to build (infrastructure, commerce agreements, supply chains…) will take years to undo.

Does this mean isolationism for the U.S? Japan’s economic model was to see the world as different components of its economy: the Middle East provides its energy; China as its manufacturer; take U.S. innovations and make them cheaper, smaller, better; Europe and the U.S. as its consumer markets. We started to use this smart economic model. Trump 2.0 wants to abandon globalism for “America First”.

An unintended consequence is Eastern and Western Europe realize they can’t depend on the U.S. and will have to spend more on their military budgets instead of more productive uses of capital. In 1989 when the Soviet Union collapsed, there was a peace dividend and it helped the global economy, including the U.S.

Germany was the economic engine of Europe with their high-end products. They are an export driven economy. The world and especially China are buying less German, high-end goods. The spending on military budgets could weaken these economies and if the tariffs turn into trade wars, Eastern and Western Europe could wind up in a recession.

Scott Bessent

The Mar-a-Lago Accord is partly the brain child of Treasury Secretary Bessent. He has an impressive background as many of Trump’s financial team do.

Here is an AI on Secretary Bessent:

Below are comments made by Secretary Bessent that suggest the economic vision of this administration:

  1. "Access to cheap goods is not the essence of the American Dream." Here the administration admits we will see rising prices and seem to be ok with this


  1. “Wall Street's done great, Wall Street can continue doing well. But this administration is about Main Street," But as he and the President admit there will be a “little pain”. Probably understated.


  1. Bring down interest rates (DOGE, tariffs could help do this)


  1. Here is a major economic problem the U.S. faces - a huge national debt with higher interest rates and interest expense:

Our national debt has exploded due to the different crises and economic trends we have faced, especially since the year 2000:

Early 2000s, Gulf War II, the cost of Gulf War II was significant, baby boomers retire in mass causing rising costs (Medicare, Soc. Sec.) with less taxes from retired boomers. “Deficits don’t matter” was the attitude in Washington. The quote is from V.P. Dick Cheney.

2007 to 2010 the collapse of the U.S. real estate market and related derivatives that were sold all over the world caused the global Great Recession. The government had to issue debt to save the financial system (banks, insurance companies, investment firms). Baby boomers continue to retire.

2020 Covid, support and aid were given to workers and other entities to help them get to the other side of the economic crisis caused by Covid. Without the aid and support we probably would not have avoided a depression. During covid, some workers decide to retire early causing more Social Security and Medicare payments and less income tax revenue.

Social Security and Medicare have risen dramatically because of retiring boomers. There are about 70 million baby boomers and their average age by 2030 will be about 65. The average life expectancy of an American is about 79.4. This means Social Security and Medicare expenses will remain high for the foreseeable future.

Unfortunately, interest rates have risen causing our projected interest expense to rise dramatically. They have gone from about .25% to over 4%.

The tariffs, and lower government spending should help over time. It could happen sooner if they held off on the tax cuts. As the image above on page 7 shows, corporate and tax cuts to high income earners have a small impact on the multiplier effect of the economy. It is better to get our national debt down and more tax revenue could help us do that.

Getting our deficits down to 3% and much lower interest rates will be hard to achieve in the near-term. It could work if we can stay on a path to lower our national debt. We also need to get interest rates much lower. Inflationary tariffs won’t help.

3% growth rate goal

We have not been able to have a sustained 3% growth rate since the 1990s. We are about a $30 trillion economy and the law of large numbers tell us that a 3% growth rate will be hard to achieve on a sustained basis. The chart above shows that the growth rate slows as time goes on, again the law of large numbers in action.

3% budget goal: the budget is over 6% of GDP and this goal will probably not be achieved. Our budget is about $6.8 trillion and it’s reported that DODGE has found about $100 billion in savings, far less than the $2 trillion projected by DODGE at the start of the year. Tariffs will have to be a major contributor to increasing revenue, lowering deficits and debt. It would make more sense to hold off on tax cuts as the multiplier effect (see page 7 image of multiplier impact) is so low that they will not help the economy.

3 million barrels of equivalent per day increase: I wrote about this last year and this goal does not make sense because we are depleting our PROVED reserves too quickly. It is better to deplete reserves of the countries that have much larger Proved reserves and lower prices and costs. Click here to study my research.

Trump 2.0 RISKS

  1. The biggest risk is the uncertainty of the major global economic changes that Trump 2.0 is pursuing, especially tariffs.


  1. No one can predict the outcome of these historic changes. It’s still unclear what the plans are. I guess we can say they are flexible. The flexibility again causes uncertainty and this causes investment and business decisions to be delayed that will probably lead to a global slow down at best, or a recession. I’m assuming the tariffs will be permanent under Trump because of McKinley’s economic success and his ambition to have tariffs help lower taxes to no taxes. He should spend less time on McKinley’s expansionism and focus on the economy, inflation, deficits, and our $35 trillion debt that he ran on.


The President is having success in slowing the flow of immigrants and fentanyl at the border.

  1. At best, there will be a slow down so the administration’s forecasts for economic growth, tariff revenue, deficits, budgets will probably be way off. Deficits and our national debt will probably continue to increase.


  1. Inflation will probably increase because of the tariffs, especially at the retail level. The biggest retailers (Amazon, Walmart, Costco) have very thin margins and will probably pass on their higher costs to their customers. The Chinese also have thin margins and the Chinese government has said they will not subsidize these businesses so they can lower their prices.


  1. The U.S. economy is about 70% consumer spending. I’ve written about the bifurcation of the consumer and how it can be a problem for a slowing economy and falling asset prices.

Source: Charles Schwab

Covid, the global economic lock down, inflation, and supply disruptions caused higher inflation and cost of living to rise to historic U.S. levels. The Russian invasion of Ukraine also caused global inflation and a slower global economy. The poor and some in the middle class have been left behind economically and can barely afford: rent, higher energy costs, food, healthcare, childcare etc. So, the economy will have to depend more on the wealthy.

There is a concept in economics called the “wealth effect”. Below is an AI explanation of the wealth effect:

“The wealth effect is an economic phenomenon that describes how fluctuations in the perceived value of assets—such as homes, stocks, or other investments—can influence consumer spending. Even if your actual income remains unchanged, when the market value of your assets rises, you feel wealthier and tend to spend more. Conversely, if asset values decline, you might cut back on your spending even though your income hasn’t dropped.”

Again, expect the wealthy to cut back on their spending, “the wealth effect”.

Higher inflation and a stagnant, stagflation, is what economists and analysts are forecasting for the economy. Some economists are forecasting a recession.

  1. Bringing back manufacturing, building factories, raising capital for manufacturing expansion, hiring and training workers will take years.


Also, collecting tariffs will take time to pay for tax cuts, deficits, and paying down the debt.

The current global economic structure took decades to build. It will take a lot of time to reverse the current global economic structure and to achieve the goals of Trump 2.0. If the “little pain” causes a slower economy and unemployment, inflation, and the cost of living to rise, this “little pain” could cause a loss of power for the Republicans in next year’s midterm elections.

Some in the Republican party know it will take years to achieve Trump 2.0 goals. That is probably why Steve Bannon, and the President have been talking about a 3rd term for President Trump. His vision will take longer than the next midterm or one term.

  1. In the 1990s, the fall of the USSR led to a peace dividend, that is reversing. Europe will be spending much more on its military as they feel abandoned by the U.S. Some countries are talking about having nuclear weapons. Rising military budgets will also probably slow growth and the world will probably be more dangerous.


  1. Geopolitical risks: Russia and Ukraine, Israel and Middle East, Iran and proxies, China and Taiwan


Summary and Conclusion


There is a growing belief that the U.S. is about the only country that believes and tries to practice free trade and free markets. Trump 2.0 wants to change the way the U.S. does business. It will probably turn away from globalism and adopt an “America First” focus.

Here are the main goals Trump 2.0 will try to achieve:


Raise tariffs

  1. Follow President McKinley and his economic plan. His use of tariffs led to U.S. prosperity. This means the tariffs will probably be long-term.


  1. Lower the deficits and national debt


  1. Balance the budget


  1. Lower interest payments on the national debt


  1. Extend the 2017 tax cuts and additional cuts for tips, overtime, and Social Security


  1. The tariffs could lead to negotiations that bring manufacturing back to the U.S. Most factories will be automated, so according to the administration, jobs will be focused on service and maintenance of the automated factories. The administration believes these will be higher paying jobs. If workers are making more, a higher cost of living won’t matter as much?


Tax cuts

It does make sense to me to extend tax cuts that have a small multiplier impact. It is better to use the tax cut money to lower our deficits and national debt. See pages 7, 8.

Expansionism

McKinley annexed Hawaii and the Spanish American War led to the acquisition of Puerto Rico, Guam and the Philippines. Probably for his own legacy, President Trump is pursuing Canada, Greenland and the Panama Canal.

The Border, and Fentanyl

Dramatic drop in illegal border and the flow of Fentanyl coming across the border

Mass deportations

There are 3 problems at the border that probably will not be solved because of the focus on mass deportations:

  1. Drugs, in the 1980s drugs came from Columbia to Florida. Now its China and Mexico. Closing the border will not help because American citizens bring them over the border, the drugs come in planes, boats, commercial big rigs…This is a law enforcement problem, versus an immigration problem.
  2. Asylum seekers are legal and we need a better system to vet and process them faster. According to legal experts, most asylum seekers will probably not be given asylum.
  3. We need low wage, hardworking laborers, especially for seasonal jobs. Many of these jobs are at farms and rural areas not close to most workers. We have always had these types of workers. We need these workers and we need immigration reform.


Secretary Bessent has goals for the economy:

3% growth rate

3% budget of GDP

3 extra MMBOE per day


He stated "Access to cheap goods is not the essence of the American Dream." Here the administration admits we will see rising prices and seem to be ok with this.

“America First” will replace globalism

Risks

The above goals and efforts are laudable, but:


  1. Trump 2.0 is very ambitious and includes too many efforts that will make most of their plans hard to achieve


  1. It will take much longer than next year’s midterms to achieve his goals. Building factories, raising money, hiring and training workers will take years.


  1. To switch from globalism to “America First” could be very disruptive to the global economy


  1. The uncertainty and confusion regarding tariffs, tax cuts, and regulation, deportations are slowing the global economy. So, it is prudent to delay capital spending and investment decisions until Trump 2.0 and its outcomes become clearer.


  1. No one can predict the outcome of Trump 2.0


  1. The administration does not seem to factor: retaliation, a slower economy, less tax and tariff revenue


  1. The Trump 2.0 case for longer-term tariffs is strong: emulating McKinley, help with tax cuts, balanced budget, and lowering the national debt


  1. The global and U.S. economy are not strong enough for tariffs, trade wars


  1. Tariffs and the uncertainty could lead to a global recession and for the U.S., possible stagflation.


  1. My conservative Republican friends will not like my concerns about President Trump: his tenuous relationship with the truth; he breaks agreements which makes him untrustworthy; he is thin skinned and does not handle criticism well; I have watched him for about 10 years and I see a decline in his energy and mental acuity and they will continue to decline as he enters his 80s; his mishandling of the covid crisis as he took no responsibility and blamed Obama, China, governors and made many misleading comments. During the crisis, I was impressed that he was bringing corporations, the government and the public to deal with the covid crisis. He said Google was working on maps that would provide locations to get covid testing. Google was asked about their efforts and they said they were only doing it locally in the Silicon Valley area. He has made many misleading comments like this and thus I Google important things he says. He is almost always, lying or misleading.


I watched many of his campaign events and his speeches were filled with misleading statements, outright lies and sometimes it sounded like he does not know what he is talking about. I question whether President Trump is the right leader to make these changes he envisions? He should have been honest with the American people about his true intentions with Project 2025 and trying to emulate the McKinley administration. He won the election because he said he would lower inflation and the cost-of-living day one, stop the killing in Russia and Ukraine before Jan 20, and he would bring back the hostages from Hamas. If we look at his business record and mixed performance of Trump 1.0, I believe Trump 2.0 will not be successful by the midterms.

Will tariffs be successful similar to the McKinley administration, or more like the Smoot-Hawley Tariff Act? It will probably be somewhere in the middle. The global economy is more complex and integrated than the McKinley administration. The global economy is not in a depression, but the tariffs and uncertainty could lead to a global recession.

It’s hard to be bullish as the bearish case is stronger. The markets probably have more downside. See my valuation projections and bear market downside potential.

Could President Trump reverse course? Politically there could be pressure because of next year’s midterms, but this is more of a political question that I’m not qualified to answer.

I’ve been raising cash for clients to as much as 30%, most are closer to 20%. Fortunately, we invested in 2020 and parts of 2022 at much lower prices. We will keep those investments because I doubt prices will pull back to 2020 levels. We have also been hedging with writing calls and some deep out of the money secured puts.

The silver lining - once we find a bottom, start to base and the economic outlook is clearer, there will probably be some excellent investment bargains just like in 2020 and 2022.