It’s happening AGAIN Buckle up. A thread 🧵
Bravos Research@bravosresearch
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May 17, 2025
~5 min read
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It’s happening AGAIN
Buckle up.
A thread 🧵
Buckle up.
A thread 🧵
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2/ A $54 trillion asset class has been bouncing back now
This is happening after a crash as violent as during the pandemic and the Financial Crisis
Today, a record 60% of US households have stock market exposure
The big question now is: can this rally really last?
This is happening after a crash as violent as during the pandemic and the Financial Crisis
Today, a record 60% of US households have stock market exposure
The big question now is: can this rally really last?
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3/ To answer that, we’re going to dig into hard historical data
But first, let’s outline the 3 potential paths ahead:
1) A sharp V-shape recovery back to all-time highs
2) A deeper pullback breaking the April 7th low
3) A choppy consolidation before another leg higher
But first, let’s outline the 3 potential paths ahead:
1) A sharp V-shape recovery back to all-time highs
2) A deeper pullback breaking the April 7th low
3) A choppy consolidation before another leg higher
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4/ Let’s start with the V-shaped recovery
For that to happen, we’d need a dramatic shift in the economic outlook
Basically, all the fears priced in earlier this year would need to vanish soon
That’s a big ask, but it’s not impossible
Some are pointing to the US-China trade deal as a reason to be optimistic
For that to happen, we’d need a dramatic shift in the economic outlook
Basically, all the fears priced in earlier this year would need to vanish soon
That’s a big ask, but it’s not impossible
Some are pointing to the US-China trade deal as a reason to be optimistic
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5/ And we’ve seen V-shaped rebounds before
The most recent example was 2020
When stocks crashed 35% from COVID only to snap back to ATHs in almost a straight line
The most recent example was 2020
When stocks crashed 35% from COVID only to snap back to ATHs in almost a straight line
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6/ Another example is late 2008
Investors went from fearing a total collapse to pricing in a strong rebound
But both of these rallies had something huge behind them:
Massive liquidity injections from the Fed
Investors went from fearing a total collapse to pricing in a strong rebound
But both of these rallies had something huge behind them:
Massive liquidity injections from the Fed
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7/ We can see this by looking at the Fed’s balance sheet
The biggest liquidity jumps in history came right before those V-shaped rallies
Today, we’re not seeing the same setup
Still, not everything is working against a V-shape recovery
The biggest liquidity jumps in history came right before those V-shaped rallies
Today, we’re not seeing the same setup
Still, not everything is working against a V-shape recovery
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8/ For one, corporate earnings have held up well
Despite the 20% market drop, S&P 500 earnings estimates are actually higher now than they were in Jan And that strength is being driven by a few important tailwinds
Despite the 20% market drop, S&P 500 earnings estimates are actually higher now than they were in Jan And that strength is being driven by a few important tailwinds
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9/ A weaker dollar is boosting international revenues
Lower gas prices are helping consumers stay afloat
And the Fed’s rate cuts over the past year may finally be filtering through the economy
These are all supportive for earnings and growth
Lower gas prices are helping consumers stay afloat
And the Fed’s rate cuts over the past year may finally be filtering through the economy
These are all supportive for earnings and growth
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10/ We've been flagging these tailwinds for months and help explain the market’s resilience
But above all of this looms one big storm: Tariffs
The US has just imposed a 3.6% average tariff on China, a brand-new number post-negotiation
But above all of this looms one big storm: Tariffs
The US has just imposed a 3.6% average tariff on China, a brand-new number post-negotiation
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11/ Treasury officials say this 3.6% rate is just the floor
We’re also looking at a 3.4% average global tariff, a 3.1% reciprocal baseline, and an extra 0.4% specifically on Canada and Mexico
We’re also looking at a 3.4% average global tariff, a 3.1% reciprocal baseline, and an extra 0.4% specifically on Canada and Mexico
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12/ Yes, those numbers are lower than what many feared, but they still affect $2 trillion in trade
That could shave off 1.5% from GDP
For comparison, GDP fell by 3% during the Financial Crisis
Tariffs may not cause a full-blown recession, but they’ll slow things down
In our opinion, this reduces the odds of the V-shape recovery
That could shave off 1.5% from GDP
For comparison, GDP fell by 3% during the Financial Crisis
Tariffs may not cause a full-blown recession, but they’ll slow things down
In our opinion, this reduces the odds of the V-shape recovery
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13/ Just because a V-shape is unlikely doesn’t mean we’re going bearish
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14/ So if not a V-shaped recovery, does that mean we’re headed for a deeper drop?
For that to happen, things need to get worse - economically or geopolitically
History shows this kind of post-bounce breakdown has happened many times before
For that to happen, things need to get worse - economically or geopolitically
History shows this kind of post-bounce breakdown has happened many times before
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15/ In May 2008, stocks staged a rally after a sharp correction, but it didn’t last
The market eventually broke to new lows and fell much further
Similar failed rallies played out multiple times in 2001 as well
The market eventually broke to new lows and fell much further
Similar failed rallies played out multiple times in 2001 as well
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16/ If that happens again today, most people already know what that means
It’s what everyone has been warning about since tariffs made headlines
And the first red flag is already here:
Q1 2025 posted a negative GDP print
It’s what everyone has been warning about since tariffs made headlines
And the first red flag is already here:
Q1 2025 posted a negative GDP print
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17/ That’s exactly how things started in 2008 and 2001, both of which went on to become full-blown recessions
In each case, the initial GDP contraction was followed by further contraction
In each case, the initial GDP contraction was followed by further contraction
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18/ In both of those recessions, stocks dropped over 50%
So if GDP keeps contracting, there’s a real risk that this year’s drawdown could just be the beginning of something bigger
So if GDP keeps contracting, there’s a real risk that this year’s drawdown could just be the beginning of something bigger
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19/ But we’ve also seen single-quarter GDP declines that didn’t lead to recessions
Like we saw in 2022, 2014, and 2011
All were temporary slowdowns that turned into strong buying opportunities
Like we saw in 2022, 2014, and 2011
All were temporary slowdowns that turned into strong buying opportunities
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20/ What was the key difference between those isolated contractions and full-blown recessions?
It was none other than the labor market
In 2001 and 2008, initial jobless claims surged alongside the negative GDP prints
Layoffs were clearly accelerating
It was none other than the labor market
In 2001 and 2008, initial jobless claims surged alongside the negative GDP prints
Layoffs were clearly accelerating
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21/ But in 2022, 2014, and 2011, despite negative GDP, we didn’t see a rise in jobless claims
And right now, in 2025, jobless claims are still stable
So that brings us to the third scenario:
Consolidation or partial retracement
And right now, in 2025, jobless claims are still stable
So that brings us to the third scenario:
Consolidation or partial retracement
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22/ This scenario is where the market chops around, digesting the bad news, but avoids a recession
A perfect example was 2011
After a 20% drop tied to the European debt crisis, stocks went sideways for months before moving higher
A perfect example was 2011
After a 20% drop tied to the European debt crisis, stocks went sideways for months before moving higher
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23/ Another example: 1998
The Asian financial crisis sparked a 20% drop and recession fears
Stocks then moved sideways for a while, but the economy held up, and the bull market eventually continued
This scenario might be boring, but we think it’s the most likely path today
The Asian financial crisis sparked a 20% drop and recession fears
Stocks then moved sideways for a while, but the economy held up, and the bull market eventually continued
This scenario might be boring, but we think it’s the most likely path today
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24/ Think of it this way: tariffs are a drag, but not a death blow
They’ve caused a slowdown, not a collapse
If the US avoids a recession in 2025, the market may keep chopping sideways for a bit
But will likely recover back to its highs
They’ve caused a slowdown, not a collapse
If the US avoids a recession in 2025, the market may keep chopping sideways for a bit
But will likely recover back to its highs
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26/ Thanks for reading!
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And follow @bravosresearch for more market insights, finance and investment strategies
