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Market forecast

For the Summer

Tuomas Malinen's avatar
Tuomas Malinen
May 13, 2025
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Market forecast
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We can now safely conclude that my market forecast from late April went to rubbish. I had good grounds for it, though. My forecast was based on the seasonality of global liquidity (money supply) injections and drains I discovered in early 2023. I looked for the historical turning points from the S&P 500 in April and May because, historically, April has seen a notable draining of liquidity, while May (and especially June) has seen injection(s) of liquidity. This is where my comparison stands now.

The 7-day moving average of daily percentage changes in the S&P 500 stock market index in April and May from 2016 until 2024, with the exclusion of 2020. Source: GnS Economics, Investing.com

It may not look to be so far off, but the long period of negative daily returns of the S&P 500 from around mid-April until mid-May failed to materialize. April started with a heavy downdraft in stock and Treasury markets, like we had warned in the Weekly Forecasts of GnS Economics on 12 March:

We are currently assuming that the market downdraft is/has been a much needed correction driven by fear over tariffs and economic growth, with strong global liquidity injections providing support for markets. In this case, we would see markets bottoming out in April or early May (when liquidity injections are set to increase), unless tariff-wars truly flare up, which is naturally also possible.

The S&P 500 hit its lowest point of this cycle on April 8. It’s likely that liquidity-support operations in China and in the U.S. were behind the recovery of the markets, in addition to President Trump capitulating under the pressure of the U.S. Treasury markets. President Trump and the Federal Reserve faced the risk of a collapse of the Treasury markets, similar to how the shortest-serving U.K. government and the Bank of England confronted a potential collapse of the gilt markets in late September 2022. Repercussions of both would have been cataclysmic. So, President Trump (with the likely help of the Fed) walked the global financial system back from the brink.

What should come next (commencing in around the 20th) would be a fierce, liquidity-driven stock market rally, which may have already started. Yesterday markets rallied from an announced ‘tariff truce’ between China and the U.S. (much-welcomed news). My forecast indicates that the rally should continue till the month's end, at least. The forecast is, again, naturally completely dependent on geopolitical and trade-related developments. At some point, approaching a U.S. recession will also start to weigh, but I expect this to occur only in the summer. Let’s now analyze what a summer in stock markets looks like using the above-mentioned methodology.

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