Redemption Era

Issue 375

By Jeff Trusheim , Chief Financial Officer, Mortgage Solutions of Colorado, LLC DBA, Mortgage Solutions Financial.

Mortgage Solutions presents Issue 375 of Market Pulse. This commentary will provide Trusheim's perspective of the economic, political, and technical considerations that will have an impact on the global & domestic financial marketplace. The report will provide a recap of the previous week's activity as well as a look at the important market-moving factors in the week ahead.

?The newly sworn-in 47th President of the United States pulled no punches in his inaugural speech, when he spoke directly to the faces of the “radical and corrupt establishment” that he said had “extracted power and wealth from our citizens while the pillars of our society lay broken and seemingly in complete disrepair.”

President Trump laid out a sweeping and disruptive agenda, vowing the liberate the country from the Biden administration policies, restore the many lofty ambitions we long for, and plant the American flag on Mars. He enumerated his grievances while pledging to pacify “a world that has been angry, violent and totally unpredictable,”

He hit the ground running and swinging, and promised a ‘golden age of America’. He vowed to reverse the ‘crisis of trust’ that had engulfed the government, and within hours of his speech, President Trump rescinded dozens of Joe Biden’s executive orders. There was no shortage of vigor or ‘fight, fight, fight’ in the first five days of what will undoubtedly be an historic four years.?

The Trump administration is unleashing a comprehensive pro-growth agenda. Manufacture in the United States or we will tariff you. “Drill, baby, drill.” Dismantle regulations across industries that had constrained investment. Crush climate-related initiatives like the Green New Deal. Lean on the banks and Wall Street to finance whatever is needed.?

If all this sounds too good to be true…it probably is, because it will come at a price. Economists are starting to model the effects of President Trump’s plans to raise tariffs, cut taxes, and restrict immigration. The upshot: inflation and interest rates are likely to be higher for at least the next two years. The CPI (Consumer Price Index) is now expected to rise to 2.7% by December 2025 from a year earlier, according to the average forecast of 73 economists…In October, this same panel saw consumer prices rising 2.5% in 2025.?

Since the start of the new year, the bond market has been urging Congress to come to terms with America’s spiraling budget and debt problems. Soon it might be demanding immediate action. Long-term Treasury bond yields have been hovering around 5%. If they stay there, the government’s inflation-adjusted cost of borrowing will likely exceed the economy’s rate of growth - meaning that the debt to GDP ratio will rise even faster than currently projected and that larger spending cuts or tax increases will be needed to rein it in. This is what ‘unsustainable’ fiscal policy looks like. President Trump and the new Congress haven’t even started talking about this problem, much less realistically dealing with it. :(?

THE STOCK MARKET

For the last four months, the S&P 500 has been trading in a choppy two-way range between around 5,750 and 6,100. There have been several attempts that tested support and several that tested resistance. This pattern can be viewed as “consolidation” before the next rally leg of the bull market begins, or as “distribution” that is forming a top and ending the bull market before it heads lower into a bear market. I deal in probabilities, which continue to point to a topping process.?

In most years, the stock markets normally experience several 5% corrections as well as at least one 10% correction. We haven’t seen a 10% correction since 2023. Most recently, the S&P 500 had a 5% correction dropping prices about 325 points, testing Fibonacci support levels, and filling the “Trump Election Gap” at 5,783. The S&P spent most of last week testing overhead resistance near 6,100, and finished on Friday at a new all-time high close at 6,101. The recent rally also moved the AAII sentiment survey from a very low bullish reading of 25% to an above average bullish reading of 43%. The bearish reading last week was below the historical average (31%) at 29%.?

Interesting, the insider survey of company executives that tallies the number of buyers versus sellers shows there were just 98 companies where at least one insider purchased the company’s shares this month, compared with 447 companies at which at least one insider sold. With one week left in January, that buy-sell ratio, at 0.22, is currently on track to be the lowest in 37 years, since 1988. Hummm.

US equities have soared to their most expensive level relative to Treasury bonds in about 25 years. I touched on this issue in last week’s missive. The forward earnings yield (expected profits as a percentage of stock prices) on the S&P 500 index is down to 3.9%, while the yield on the 10-year Treasury has increased to about 4.65%. That means the difference between the two, a measure of the equity risk premium, or the extra compensation to an investor for the risk of owning stocks, has fallen into negative territory and reached a level last seen in 2002 during the Dotcom boom and bust.?

ONE MORE THING: Last weekend’s Barron’s had an article citing the fascinating results of a study which tracked 29,000 stocks from 1925 through 2023 and found that most stocks lost money over time and that only a small number of stocks are responsible for the majority of the market’s long-term gains. The study found that the majority of individual stocks actually LOSE money, and Treasury Bills have delivered better returns than nearly 60% of stocks listed on Wall Street exchanges.?

THE BOND MARKET

The 10-year Treasury yield traded in a range of 4.53% to 4.66% last week, and finished at 4.61%, down just 1 basis point, The FOMC has their January meeting this week, and no policy adjustments are expected. The fed fund futures contract for January 2026 is trading at 3.93% indicating the likelihood of just one 25 basis point cut this year. Of interest is the expectation of a HIKE this year, with a current probability sitting at 25%.?

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Have a great week!

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Jeff Trusheim is the CFO of Mortgage Solutions Financial. Jeff is a 30+ year veteran in the Wall Street arena, with a background in economics, risk assessment and finance (banking and mortgage). He has previously worked with Fortune 500 companies in growing their portfolio and economic footprint.