Demand Destruction, Not Inflation, is What You Should Be Worried About - Thomas Ng Memo 21 April 2025

Guess you could say I’ve been reading Trump long before the market had to..

On Monday, April 21 at 341pm, I emailed Clients my latest market update titled "Demand Destruction, Not Inflation, is What You Should Be Worried About", offering key insights on the S&P 500 (aka SPX) - the world's most important index - and more.

Below is the full transcript for your perusal:

'Dear Clients,

In my Sunday, April 6th investment memo to you, titled "Unprecedented & Tarrifying!", I highlighted the S&P500 4,800 level as a likely support level - one that could backstop this recent “tariffying” pullback.

As shared in a quick note to some of my Clients on WhatsApp, I took the opportunity to accumulate both the S&P500 Index ETF and SG local banks during this "panic" dip. The market, true to script, rebounded swiftly on a change in tone from Trump regarding tariffs, ie a postponement of tariffs for 90 days - exactly the kind of trigger we anticipated. See below whatsapp screenshot A.

So far, the market has been moving in sync with the rhythm I’ve been tracking - every twist and turn. Maybe it’s because I’ve long studied how these patterns unfold… or maybe it’s because I read "The Art of the Deal" cover to cover years ago.

In a way, I’ve been reading Trump long before the market had to :)

What’s Next for the Market?

Looking ahead, the S&P500 Index (aka SPX) appears to be rebounding its way toward the 61.8% to 78.6% Fibonacci retracement zone, which is respectively the zone between SPX 5643 and, guess what, the 5853 level. See below SPX Chart B.

Chart B - SPX Daily Chart dated 17 April 2025, I set the stage for 6 April, may I have the honour for the orange zone as well? Let's watch this space!

If that number 5853 rings a bell, it should - it was the same "1st red flag" significant support level I’ve been pounding the table on since October 2024, if you’ve been following my memos.

Even after 22 years in the Capital Markets, I still find it fascinating how price levels often align so perfectly. As I often tell clients & followers, the charts whisper to me.

Now, if the market does manage to claw its way back to the 78.6% retracement, it may reopen the door to my original all-time high target of 6220. But let’s not hold our breath just yet.

The “Trump effect”, IMHO, has introduced a fresh layer of "Government Policy Risks" - unpredictable and significant. More importantly, this policy uncertainty is already affecting the real economy: consumers are tightening their wallets, and corporations are holding back on capex and investments. Simply put, this increases recession risk.

As a result, the Fed might be forced to pivot - perhaps cutting rates as early as the May or June meeting, as it balances its dual mandates of full employment and inflation control.

Now, to analysts and mainstream media who continue to harp on the potential inflationary pressures from tariffs, I have one message:

Demand Destruction - and potentially a recession - is likely to hit first, long before any meaningful tariff-induced inflation shows up.

Here’s why:

Economics 101 - Inflation is driven by both supply and demand.

The common assumption is that with tariffs, imported goods will become more expensive, and these higher costs will be passed on to consumers, pushing up inflation as measured by the CPI. But that assumption only holds if consumers are both willing and able to absorb those higher prices.

Right now, that’s far from the case. After two years of depleting their post-COVID savings, US consumers are tightening their wallets. Corporations, in turn, can only pass on higher input costs if demand exceeds supply - and currently, demand is clearly softening.

During the stimulus-fueled years of 2020 and 2021, consumers had ample cash from government handouts and were more than willing to spend. Back then, companies had pricing power and could easily pass on rising costs.

But today, that’s no longer true. As excess savings dry up and US consumers pull back on spending, inflation naturally cools. Meanwhile, corporate margins come under pressure because they can no longer fully pass on cost increases from tariffs or other sources.

In other words, IMHO, analysts, the mainstream media - and perhaps even the Fed - should shift their focus away from inflationary fears and pay closer attention to the rising risks of recession and unemployment. Demand destruction is probably already underway, and that poses a far more immediate threat to the economy than any delayed tariff-driven inflation.

Now, for more evidence of underlying US economic weakness, please refer to my 17 March memo (https://tinyurl.com/leaningbullish), where I laid out a range of softening economic data points - all of which were published by their respective agencies even before the recent Trump tariffs saga had even began.

Key takeaway for equities:

I'll cut to the chase - it may be prudent to lighten up. As the US markets - and by extension, Singapore - attempts a recovery in the months ahead, investors should consider reducing equity exposure and raising cash. If my read on the market is correct (again), diminishing corporate margins will eventually squeeze earnings per share (EPS) - and as we all know, when EPS goes down, valuations get re-rated.

Given the often flippant and unpredictable nature of the US President - who clearly isn’t following the traditional presidential playbook - investors should account for a fresh layer of policy risk. This added uncertainty warrants a risk premium that could affect investments across the board.

For my clients invested in the Phillip Equity Global Growth Leaders Managed Account (GGL), I’ll be recommending a further 25% reduction in allocation in the following few months, from an earlier trim late last year.

What is GGL?

GGL stands for Global Growth Leaders - a discretionary portfolio under Phillip Managed Account Services. It’s a curated equity growth strategy with a unique spin: the brainchild of our PhillipCapital Chairman, Mr Lim Wah Min, who adapted the “Rule of 40” methodology to identify high-potential global stocks.

The Rule of 40 blends a company’s 3-year compound annual revenue growth rate with its EBITDA margin - seeking a combined total of 40% or more. This approach has historically outperformed the S&P 500 over 3, 5, and even 10-year backtests.

🔗 Learn more about the "Rule of 40": https://www.poems.com.sg/market-journal/rule-of-40-for-stock-selection/

Highlights of GGL:

• Direct ownership of global stocks, held in Client's name

• Fully discretionary - our experienced Portfolio Managers execute trades on your behalf, ideal for busy professionals and business owners

• No lock-in period; full transparency with online access and monthly reports

• Customised strategies aligned to your risk profile

• Diversified exposure across global asset classes

• Active oversight by your advisor - I add immense value by tactically managing your portfolio's GGL exposure, recommending when to add, hold, or trim based on market conditions. Trimmed allocations can be rebalanced into money market funds, short-duration bonds, or other lower-risk assets to help preserve gains and manage volatility.

• Minimum investment: S$250,000

Whether you’re too busy to track the markets or simply prefer a seasoned advisor to steer the wheel, GGL offers a powerful, professional, and hassle-free way to grow your wealth.

Let me know if you'd like to review or rebalance your portfolio. As always, I'll be watching the markets closely - and listening to what the charts are whispering to me next.

Live Long & Trade Well!

Thank you & regards,

Thomas Ng, CMT

Principal Trading Representative

首席股票经纪

www.thom-ng.com

#plsreaddisclaimer #chartforillustrationonly #spx17apr25 #whatsyourtradingangle

Chart source: Tradingview'

Timely WhatsApp messages to Clients during the chaos - a steady hand guiding them through choppy waters