Despite Economic Green Shoots, Stocks Remain Vulnerable | Michael Kantrowitz

An update on the H.O.P.E framework

Today's guest is best known for his H.O.P.E framework, a highly effective way to measure the health of the economy, and tell whether it's getting stronger or weaker.

As we begin a new year -- with record housing unaffordability, trade wars and a cooling jobs market -- what does his framework tell us 2025 has in store?

To find out, we have the good fortune to speak today with Michael Kantrowitz, chief investment strategist & managing director at Piper Sandler.

Based on green shoots he’s seeing in corporate orders and profits, Michael is becoming more positive about the economy’s future prospects.

But that optimism doesn’t necessary transfer to the financial markets given how richly-valued most assets are today.

To find out how he recommends positioning for 2025, click here or on the video below:

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Adam’s Notes: Michael Kantrowitz (recorded 2.10.25)

EXECUTIVE SUMMARY:

• The Federal Reserve has cut rates by 100 basis points, but there is uncertainty about further reductions. Small businesses and lower-income consumers stand to benefit the most from these cuts due to their reliance on prime-based lending. The 10-year Treasury yield is expected to fluctuate between 4-5%, with limited downside potential unless unemployment rises sharply. Liquidity remains a key concern, as corporate refinancing at higher interest rates could act as an economic headwind.

• The strong stock market performance of the past two years is unlikely to be repeated in 2025. Equity valuations are historically high, with credit spreads at 25-year lows, indicating that minimal risk is currently priced into the market. While the Mag 7 stocks have been dominant, a market broadening may occur as small-cap earnings estimates turn positive for the first time in two to three years.

• The HOPE framework analysis suggests that housing activity remains weak due to affordability issues, although prices have not significantly corrected. Orders and profits, however, are showing signs of recovery, particularly in manufacturing, as ISM and PMI indices have returned to expansion territory. Employment trends indicate stabilization, with unemployment hovering around 4.1-4.3%, but no sharp decline is expected. The Federal Reserve’s easing measures have provided some economic relief, but the overall impact remains limited.

• The housing market is