Bear Market Rally, Recession Risks, and Hard Asset Opportunities: David Hay’s 2025 Outlook

Massive Shortages, Empty Shelves In A Few Weeks? 'Bear Market Rally’ Won’t Last | David Hay (YouTube link)

Introduction and Context:

• Host David welcomes David Hay, former co-CIO of Evergreen Gavekal (46 years in finance, 23 with the firm), now founder of Haymaker Publications, to discuss the economic landscape, recent GDP data, and market outlook as of April 30, 2025. The video highlights a rare three-standard-deviation market event in April, signaling a bear market rally, and introduces Hay’s new venture.

Economic Landscape and GDP Data:

• Negative GDP Growth:
• Q1 2025 real GDP declined by 0.3%, the first negative reading since 2022, worse than the consensus expectation of -0.2% (vs. 3% average growth in prior years).
• PCE price index rose 1.8%, with core PCE (ex-food) up 3.5%, indicating persistent inflation pressures.
• Hay views the decline as unsurprising but concerning, given artificial Q1 boosts from pre-tariff import surges. The negative growth despite this “sugar high” suggests underlying weakness.
• Tariff-Induced Supply Chain Issues:
• Pre-tariff buying (anticipating “Liberation Day” in April) drove import surges, inflating inventories but creating future risks. Container bookings from China to the U.S. fell 45% year-on-year, with ships leaving China 50-60% empty.
• An Apollo economist (quoted by CNBC) warns of “COVID-like shortages” and empty shelves in weeks, impacting consumers and firms reliant on Chinese intermediates. Hay deems this realistic, not alarmist, due to sharp export declines from China, a critical global supplier.
• Even if tariffs ease (e.g., Trump-Xi reconciliation), supply chain disruptions will persist, exacerbating shortages and inflation.
• Consumer and Economic Weakness:
• Credit card delinquencies and consumer loan charge-offs have broken out to multi-year highs (12-year range), signaling consumer stress predating tariffs. These macroeconomic breakouts mirror stock patterns, indicating significant deterioration.
• Manufacturing new orders vs. inventories show high inventories relative to declining orders, a bearish signal historically correlated with S&P 500 declines. The current rally hasn’t priced in a recession, only a “growth pause.”
• The ratio of leading to coincident indicators has fallen to levels seen only during major recessions (e.g., 1990, 2000, Great Recession, early 1980s), reinforcing recession risks.
• Recession Probability:
• Goldman Sachs raised its recession probability to 45%. Hay leans toward recession over slower growth, citing pre-tariff economic weakness and heightened uncertainty from Trump’s tariff flip-flopping (e.g., April 9-10 pivot).
• Uncertainty reduces business investment and consumer spending, amplifying recession risks. Hay estimates 80-90% recession odds before the tariff pivot, now slightly lower but still favoring contraction.

Market Outlook and Bear Market Rally:

• Bear Market Rally Characteristics:
• April’s three-standard-deviation volatility (occurring <1% of the time) is typical of bear markets, not bull markets. The current rally is a powerful but fleeting bear market rally, luring investors into thinking the downturn is over.
• Historical bear market rallies (e.g., 2000-2001, when the NASDAQ fell 78%) featured sharp gains (e.g., 7%+ daily moves), but declines resumed. The S&P 500’s current rally hasn’t factored in recession risks.
• Bull Case: Zweig Breadth Thrust:
• The Super Zweig Breadth Thrust Indicator (triggered last week, 7th since 1962) historically led to 20%+ S&P 500 returns within a year. However, some occurred in bear markets with further declines before rebounds, and today’s market is expensive (20x forward earnings) with optimistic estimates (+7-12% growth, likely flat).
• Hay suspects a 10-15% decline before any sustained rally, viewing downside risks as dominant.
• Market Sentiment:
• Early April’s Fear and Greed Index (extreme fear) and elevated VIX signaled a rally setup, which materialized. However, bear market rallies are deceptive, and Wall Street’s optimism (or desire to believe the bear market is over) is misguided.

Investment Strategies and Safe Havens:

• Safe Haven Assets:
• Treasuries: Disappointing in April (yields rose, dollar fell during stock declines), defying their safe-haven status. Hay prefers short-to-mid-term treasuries (3-7 years) over long-term, as recession fears could push long rates higher, a view shared by Jeff Gundlach and Neil Howe.
• Gold and Silver: Preferred anti-fragile assets. Gold broke out in 2024 (inflation-adjusted), but is extended and correcting. Gold miners lag but show 12-year breakout potential, with strong Q1 earnings expected (e.g., Newmont, Barrick, Eldorado, Alamos). Silver’s high short interest (SLV ETF) and recent breakout suggest catch-up potential, driven by military and solar demand (less recession-sensitive). Platinum and palladium are also attractive at low valuations.
• Uranium: A top pick, non-cyclical with strong demand (new nuclear facilities in Poland, China) and constrained supply. The SPRT Uranium ETF (SRUUF) trades at a 9% discount, offering a “layup” opportunity.
• Yen: Up 10% in 2025, expected to appreciate further (143 to 120 or 100 vs. dollar), a non-fragile asset correcting but with upside.
• Foreign Equities:
• U.S. equities lag global markets by the widest margin since 1993, supporting a “great rotation” from U.S. mega-cap tech (Magnificent 7) to cheaper foreign markets. Foreigners own $18 trillion in U.S. equities, but U.S. policies (trade deficit reduction, anti-foreign sentiment) may drive capital outflows, hurting the S&P and NASDAQ.
• Lower valuations and stimulus in other countries (e.g., military spending boom) make foreign equities attractive. Hay cites Canada’s election shift as evidence of global unease with U.S. policies.
• Infrastructure Play:
• Hay recommends CRH (aggregates company, listed in the U.S., 16x earnings vs. peers at 25-30x), citing Neil Howe’s infrastructure spending thesis. CRH’s 450% earnings growth over a decade and North American focus make it a compelling, under-the-radar pick.

Fourth Turning and Long-Term Outlook:

• Referencing Neil Howe’s Fourth Turning, Hay sees the U.S. in a crisis phase (cycles every 80 years), with economic and social turmoil consistent with bear markets, not bull markets. The U.S. faces risks from high deficits ($2 trillion, federal salaries up 14% y/y), trade policies, and declining global confidence in the dollar and rule of law.
• Debt-to-GDP (high, post-WWII levels) resolution likely requires inflation, as post-WWII (120% to 70% in seven years). This supports hard assets (gold, silver, uranium) over stocks.
• The Fourth Turning may last until the 2030s, with pain (recession, debt reduction) before a potential boom (First Turning). Spending cuts are needed, but political will is lacking (Doge movement stalled), making inflation more likely.

Fed Response and Stagflation Risks:

• Q1 GDP data reflects stagflation (negative growth, persistent inflation). Tariffs exacerbate this by raising prices and hurting margins, complicating Fed policy.
• The Fed is reluctant to ease due to inflation fears (2021 surge memory), Trump tensions, and soft data (e.g., consumer confidence) not yet matched by hard data (e.g., GDP). Significant easing requires stronger recession signals.
• Supply chain disruptions (COVID-like shortages) could reignite inflation, limiting Fed stimulus.

Haymaker Publications Announcement:

• Hay’s new venture offers four portfolios: two model ETF portfolios (Growth, Income) with specific buy recommendations, and two securities attract portfolios (individual stocks like CRH, for consideration). Free from Evergreen’s compliance constraints, Hay provides candid recommendations.
• The newsletter includes daily updates, Monday trade ideas, Friday macro pieces (often with guests), and focuses on income investments (e.g., Simplify MBS ETF, MTBA, 6% yield, low volatility). Subscription is affordable, with one good idea covering costs.

Conclusion and Takeaways:

• Q1’s negative GDP (-0.3%) and tariff-driven import surges mask deeper economic weakness, with recession risks rising (45% per Goldman, higher per Hay). The April bear market rally is deceptive, with downside risks dominant (10-15% S&P decline likely).
• Hard assets (gold, silver, uranium, platinum, palladium) and the yen are preferred over treasuries and U.S. equities, which face foreign capital outflows. Foreign equities and infrastructure (CRH) offer opportunities.
• The Fourth Turning frames a challenging decade, with inflation needed to address debt, supporting hard assets. Haymaker Publications provides actionable guidance for navigating this environment.