The excitement of new highs for the S&P 500 (SPY - Get Rating) didn’t last long.

As I warned in my last weekly commentary the early 2025 problems are far from over.

Stock Alert: Beware Looming Trade Wars

Right on cue the first little spark of trade wars flared up with Colombia. This had stock futures ready to fall on Monday. Then comes along news of the Chinese entry into the AI space called DeepSeek.

This toxic combination had stocks backtracking. Even beloved NVDA and other top tech names took it on the chin as their glorious growth prospects are not as assured as they used to be.

The short story is to get ready for more market downside.

The longer story is shared below…

Market Outlook

Colombia is only the 28^th largest trade partner of the US. In fact, is only about 4% of what we trade with China. Yet even that miscue over the weekend had stock futures ready to fall almost 1% on Monday.

So now imagine what happens if trade problems arise with China…or Canada…or Mexico…or Europe…or Japan…or ALL OF THE ABOVE.

This is why I had no desire to chase the market as it raced up to the old highs of 6,100 and just a smidge more. I just saw it as range bound trading before the next leg lower.

(Yellow = 50 Day Moving Average / Orange = 100 Day MA / Red = 200 Day MA).

The early January weakness had us testing the 100 day moving average down around 5,800. I sense that it would only take a couple more troublesome tariff headlines to retest that level.

The more interesting question is whether the 200 day moving average (long term trend line) will finally be under attack. Since it has been quite some time since that happened then I think about 50% odds of that taking place in the next couple months.

No, I have not turned bearish.

Most signs point to a continuation of the long term bull market started in October 2022.

The first of two main problems is that we are now in year 3 of the bull market which has historically been lackluster compared to the glorious gains that come so easy in the first 2 years of a new bull. I saw this as more of a problem for large and mega caps that were getting some frothy valuations.

The DeepSeek news was a good start to rectifying that matter. But, like in the case of TSLA shares would be fairly valued at only $100 which is still a robust 30X this years earnings. So there is a lot more air to remove from some of those “bubblelicous stocks”.

The second problem is what I shared in commentary last week. That being 3-6 months of headline risks as the Trump administration starts strong arming the rest of the world with tariffs.

THIS WILL NOT GO SMOOTHLY.

Again, let me show the chart from 2018 where the final few months were mired in what is fair to describe as a trade war with China.

Also from last week are these key sections:

“Trump is an old dog…and he ain’t learnin’ any new tricks.

Thus, we should fully expect the same “Art of the Deal” negotiating style that we saw back in 2018 where he makes strong demands…then China responds with their own brand of tough talk…and then things get worse…and then they improve…and then after a llllllooooonnnnnggggg drawn out process a resolution will be made that probably will be quite reasonable.

Unfortunately, there is ample opportunity over this timeline for things to go bad and stocks take a dive…Meaning things will get worse. And China will say scary stuff with the market rising and falling on every major trade headline.  

This is a big part of the reason that I got more defensive last week and expect volatile market conditions over the next 3-6 months with a downside bias.”

We are now sitting on a 37.5% cash position. I look forward to putting that to work in the best looking POWR Ratings stocks as we explore lower.

The recent lows of 5,800 will be tempting. But will keep some powder dry in case a trip towards the 200 day moving average is in the cards (now 5,615, but probably closer to 5,650 to 5,700 when the time comes).

I know some people read this and think; Why not be 100% cash? Or why not short the market if you are this certain?

I have been investing for 44 years and what I have become most certain about is that its hard to be certain of anything.

Meaning the market likes to play tricks on you. And not play according to past rules or what you think is logical.

In particular, a bull market can run higher at any time. Thus, to have that much money out of the market…or heaven forbid betting against the market…then you will fall far behind with such an aggressive posture.

I believe more in balance of what I expect to happen (volatility and modest downside) and the bull market continuing to stampede higher. Thus, I am mostly long stocks in more upside unfolds. But do have a stockpile of cash to put to use at lower prices.

My favorite stocks to own now are shared below…plus my 1 short recommendation (TSLA - Get Rating)
Editor, Reitmeister Total Return

SPY shares . Year-to-date, SPY has gained 3.15%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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