To The Moon

For US Treasury Secretary Scott Bessent and pundits who uniformly said that “Moody’s downgrade of US debt rating” does not matter — Mon, 19 May 2025 kicked off with stocks and bonds, lower.

According to Cumberland Advisor, Chief Investment officer, David Kotok:

• US’s deteriorating finances plays a role, but not a starring one.

• The estimation focuses on how much tariffs will erode corporate earnings.

• They may not be 100% spot-on but should be within a reasonable guessing range for starters.

Kotok’s Estimations:

• Over next 12 months, the S&P 500 earnings per share will be reduced by -$30 from tariffs, taking current estimates of $260 down to $230.

• This estimate is under the assumption that there are no other protectionist policy changes.

• This number comes from data-modelling that convert a tariff level into an equal corporate tax rate change, said Kotok.

• The Trump administration and Republican Congress are working to cut corporate taxes. However, every 1% cut in the current 21% tax rate only increases S&P 500 earnings per share by $2.

• Taking into considerations (a) tariffs and (b) a slowing economy, earnings could fall to between $200 and $220 per share.

• With a price-to-earnings (P/E) ratio of 20, this puts the S&P 500 in the 4,000 - 4,400 range.

• Rising Treasury yields, as seen in recent trading, could push this number even lower.

• In the worst case, the S&P 500 could drop below 4,000.

• In a moderate case, it could stay closer to 5,000, if the final tariff policy is around the expected 10% level and there is only mild retaliation on America’s services trade surplus.

Kotok qualifies that (1) a change in policy by Trump or (2) a financial crisis leading to the Fed’s action could change these outcomes.

Fed’s Possible Actions:

• Lowering interest rates.

• Providing short-term loans to banks and other financial institutions.

• Purchase (large amounts of) government securities or other assets.

• Creation of special programs to support liquidity and credit markets

Risk sentiment guage

Key Assets Performances.

The risk sentiment gauge shows that investors are cautious, with only 38% showing a "Risk on" attitude.

• The US dollar and 10-year Treasury futures are strong, that usually means people are avoiding risk.

• The S&P 500 and Nasdaq 100 futures are down, showing weakness in stocks.

• Oil is also down, and gold is rising, which often happens when investors are worried.

Overall, the market is off to a rough start, with stocks falling and safe-haven assets like gold and Treasurys gaining strength.

Below is a summary of key assets performances, that is self-explanatory.

The Gold Rush.

One of the best performing assets is gold.

Below chart from fund management company Incrementum shows global central bank purchases of gold over the last 75 years.

Gold purchases - 1950 to 2024

According to Incrementum’s May 2025 report, titled “In Gold We Love”:

• Global central banks have increased their gold reserves by more than 1,000 metric tons each year. (see above)

• It has been on-going for 3 years in a row now.

• It had begun with Russia invasion of Ukraine in February 2022.

• Achieving a special kind of hat-trick, as a result.

• Demand from central banks remains significantly higher, and ETF demand from Western investors is now also increasing, albeit belatedly.

• Lastly, influence of emerging Asian markets on the gold price is becoming increasingly significant.

US Leading Economic Index (LEI).

US Conference Board’s Leading Economic Index (LEI) provides:

• An early indication of significant turning points in the business cycle.

• And where the economy is heading in the near term.

On 09 May 2025, LEI report for April 2025, fell sharply by -1.0% to 99.4 (baseline year 2016=100), its largest monthly decline since March 2023. (see above)

This follows a -0.8% decline in March 2025, that was also a revised downward of –0.7% originally reported.

This signals slower growth ahead, that can pressure stock prices.

Now that we have a rough idea of the overall direction, how should we position ourselves ?

For that, we turn to Morningstar’s Price/ Fair value by Sector. (see below)

Top 3 most undervalued sectors : (as of end April 2025)

• Communication Services.

• Energy.

• Consumer Cyclical / Real estate.

This post will look at “Energy” sector, the greatest laggard as oil prices have continued to slide lower.

The 3 mega cap stocks that have fallen the most in 2025:

• $Exxon Mobil(XOM)$. YTD, XOM has dipped by -2.72%.

• $Chevron(CVX)$. YTD, CVX has declined by -6.96%.

• $ConocoPhillips(COP)$. Year-to-date, COP has fallen by -11.83%. (see below)

It is undeniable that Energy sector is undervalued.

Question is with a weakening US economy and Trump’s tariffs’ disruption to global economies, how long more will energy stocks continue to remain depressed ?

Must Read: Click on below titles to access. Repost to share, Like as encouragement ok. Thanks.

• Quantum QUBT is profitable now. "Buy" time ?

• TGT Fell - Weak US Market or Earnings or Both ?

• Burry sold All, but One US stock. Find out !

• Do you think US economy will slip into recession / stagflation, causing Market to dip ?

• Do you think Energy stocks will remain depressed at least for 1½ to 2 years or more’?

If you find this post interesting, give it wings! ️ Repost and share the insights ?

Do consider “Follow me” and get firsthand read of my daily new post. Thank you.

@Daily_Discussion

@TigerPM

@TigerStars

@Tiger_SG

@TigerEvents