Bungee Market

Expect More Volatility

You don’t need us to tell you the first 4½ months of 2025 have had plenty of thrills-n-chills for the stock market. But…

Let’s pause for a moment’s perspective. Going into today’s trade, the S&P 500 stood at 5,916. For the record, that’s…

• 6% higher than at the start of the year
• 7% lower than the record close on Feb. 19
• 7% higher than the panic low on April 8. ( Quite the bungee-cord move, right?)

So the coast is clear, right? Up, up and away…

Well, hold on. If it’s tariffs you’re concerned about, remember that the story isn’t over. We’re just in the middle of a couple 90-day pauses. Absent any agreements, the “reciprocal” tariffs still kick in on July 9 and the tariffs targeting China return to their previous levels on Aug. 12.

But forget about tariffs. Paradigm chart hound Greg Guenthner certainly has. He’s just watching the price action for cues — mindful of market history.

“As much as I would love to put the bear market behind us, so far the price swings pale in comparison to the last major sell-offs in 2020 and 2022,” Greg wrote his Trading Desk readers yesterday.

“The once-in-a-lifetime COVID pandemic aside, volatility expands toward peak selling pressure and then collapses as the market recovers.”

Case in point: “The Consumer Discretionary ETF (XLY)’s three-day rate of change is on par with spring 2022 — the early innings of the bear market.

“I expect more explosive moves in both directions if stocks are truly posting a COVID-esque V-bottom or if this is an honest-to-goodness bear market.”

Either way, Greg expects the May rally to lose some of its oomph.

“When it does, we’re tracking 5,700 in the S&P 500,” he says. (Again, the S&P ended yesterday at 5,916).

“A break below that key level increases the likelihood of revisiting last month’s low. But if we don’t see those lows anytime soon, perhaps the 20% correction wasn’t a bear market in the first place. Instead, it could’ve just been a temper tantrum.”

The good thing about following Greg’s research is that you don’t have to think about the major averages and where they’re going.

Amid all of the market’s springtime turbulence, Greg’s Trading Desk readers have closed out 10 trades since the beginning of March. The average gain — 50%. (Yes, that includes the losers.)

Some of those gains came in as little as four days. The longest any of them took to materialize was six weeks.

And that’s not just a lucky streak. Over a two-year span, Greg’s approach had the power to grow a $40,000 model portfolio to $266,000.

It’s one of the most successful strategies I’ve seen during my 18 years in financial publishing. And it’s time that you take advantage. Check out this invitation from our customer service director to learn how you can be added to Greg’s alert list this coming Monday.

Gold Is a Vote of “No Confidence” in Congress

Gold is getting another beat-down today, but celebrity investor David Einhorn is all-in on the Midas metal.

“Gold is ultimately about confidence — or the lack of it — in U.S. fiscal and monetary policy,” he tells CNBC. “There’s a bipartisan agreement to do nothing about the deficit until we actually get to the next crisis.”

Einhorn, founder and president of the hedge fund Greenlight Capital was speaking at the Sohn Investment Conference in New York on Wednesday. Greenlight’s portfolio grew 8.2% during the first quarter, compared with a loss of over 4% in the S&P 500. A meaningful gold position certainly helped.

At the same time Einhorn spoke on Wednesday, Congress was reinforcing his critique. …

It shouldn’t be hard, right? But apparently the agenda is to extend the Trump tax cuts and raise the debt ceiling first… then get around to passing a budget that hypothetically will include the spending cuts recommended by the “Department of Government Efficiency.”

It’s the sort of news that should send gold substantially higher — except for the fact that gold made a too-far-too-fast run past $3,500 last month. This morning the bid is down $64 to $3,175.

➢ One more gold tidbit: Also on Wednesday Costco clamped down on purchases of its one-ounce gold bars. It used to be limit two bars per transaction. Now it’s only one bar, and no more than two transactions in 24 hours.

Meanwhile, those congressional follies are as strong an explanation as any for the sell-off in the bond market this week — pushing prices lower and yields higher. On Wednesday the yield on a 10-year Treasury note surpassed 4.5% — even higher than during the bond market freakout last month.

But as we write, Republican spending hawks in the House Budget Committee just sent the tax-cuts-and-debt-ceiling bill down in flames. Five Republicans voted against the bill for a final vote of 16 yea and 21 nay. On the theory that Uncle Sam might actually get his fiscal house in order, the 10-year yield is down to 4.43%.

The action in the stock market as the week winds down is like watching paint dry, with none of the major averages moving more than a tenth of a percent.

Crude is set to end an extremely volatile week a little over $62. Bitcoin has hoisted itself back over $104,000 for the moment.

Lights Out

It being mid-May, it’s time for our annual warning about rolling blackouts in case of an extra-hot summer.

The North American Electric Reliability Corporation is out with its annual “Summer Reliability Assessment.”

The picture isn’t dire — but it’s concerning for a wide swath of middle America. Here’s a map we nicked from NERC’s report…

As always, folks in the Upper Midwest and Mississippi Valley served by the MISO interconnection — including your editor — are at elevated risk of the lights going out under extreme circumstances.

Texas and New England are also still at risk. And this year we’re joined by folks in the Great Plains, But on the plus side of the ledger, the desert Southwest is in better shape compared with last year.

(Curiously, PJM — the biggest regional grid operator serving folks from New Jersey west to Illinois — gets a clean bill of health even though PJM itself is raising the alarm, as we chronicled in Wednesday’s edition.)

“Power demand is sharply up since last summer,” says a Washington Post summary of the NERC report, “increasing at more than double the rate it did between 2023 and 2024.”

If you’ve been keeping up with these daily dispatches, you know why: AI is the monster that ate the power grid.

In addition, NERC’s report once again acknowledges that aging coal and natural gas power plants are being retired faster than renewables are coming online — and renewables have reliability issues that even the WaPo is willing to acknowledge.

“Large amounts of wind and solar power have been added to the grid in the last year, and their inability to feed energy around-the-clock to the aging power network can destabilize it,” says the article. “While a vast expansion of industrial-size batteries to store that energy is helping, there is not yet enough storage to solve the problem.”

Yeah, and there never will be barring some sort of technological breakthrough.

Money alone can’t solve the reliability problem — as the NERC report notes.

It warns there’s a shortage of “parts, materials and skilled technicians” that’s holding up maintenance of existing transformers and installation of new ones.

This shortage was a hot topic at the annual CERAWeek energy conference in Houston earlier this spring. Energy journalist Robert Bryce was in attendance and asked one knowledgeable participant what could slow the necessary build-out.

Her answer: “Turbines, transformers and people.”

“There's a lack of gas-fired turbines, there's a lack of high-powered transformers, and the labor cost and the labor availability is a key pinch point,” Bryce tells the Financial Sense podcast.

“So we can talk about tens of gigawatts of new potential electricity demand, but if we don't have the turbines, transformers and the people to build the capacity, well, that simply won't be realized. That capacity, that new electricity availability, just simply won't be there.”

Among the Paradigm analysts, our trading pro Enrique Abeyta has been front and center with investing opportunities in this space — especially the “independent power producers” that aren’t regulated utilities. Nor is that the only theme on his radar in his entry-level newsletter Breaking Profits.

Comic Relief

OK, is this just someone having fun with Photoshop? Or is this what lawsuit prevention in the 2020s really looks like?

Cynicism

I wasn’t really sure what sort of reaction I’d get to yesterday’s edition — aka, “the cynicism issue.”

But it filled over nine pages of a Word document and everyone who wrote in was gracious. Perhaps I managed to articulate something that for many of these readers existed only on a subconscious level until now. A few highlights…

“Until your column yesterday,” wrote one, “I was in the ‘Geesh, He’s So Cynical!’ camp, but you’ve changed my mind. Thank you for the thoughtful contribution, and I look forward to many more. You don’t need my permission to write freely and let the chips fall where they may, but feel free to do so anyway!”

“Are you too cynical?” another reader begins. “ Life makes you more cynical and I do not believe you are ‘over the edge.’ Always appreciate your perspective, even if it is not similar to mine. Makes the world go round.”

“Just want you to know, I look forward to receiving The 5 every day,” writes a longtimer. “I always find it thought-provoking. I don't always agree with you; however, I respect your point of view. I believe that discourse and dialog are dying in this country and that is too bad. To me, one of the beautiful parts of life is the diversity of people. I prefer to be curious about people in general and enjoy the process of interacting. You never know what you might learn and that your current position on a subject might be wrong. Keep up the good work.”

On the flip side: “Dave, this is the first I've read your writings in 5 Bullets, and I did not find any cynicism, only reality. If you are a cynic, I'm totally over the cliff.”

“It's true, you may be a cynic. But this raw, honest explanation of how you came to be that way is refreshing,” writes our final correspondent.

“But the end — you want to help people — is perhaps more important than the things which turned you cynical. Seeing, and understanding, the dark underbellies of politics and journalism is enough to bring out the cynic in anyone. The reader that claims that your cynicism has taken a toll on their soul — maybe, but I hope that the outlet of expressing it in The 5 helps to keep it from doing the same to yourself.

“Personally I hope you never change your delivery. The very things that have made you cynical provide historical perspective, as it relates to current conditions. IMO that is critically important, and invaluable. I may not always agree with your conclusions (I do more often than not) but if I don't, at least I can tell how you got there.

“A single issue to explain your cynicism seems a bit much. While appreciated by many (myself included) I'm sure it most likely wasn't necessary. I'm willing to bet that many more of your readers appreciate your take on current events, with the healthy dose of cynicism that take is accompanied by, than are turned off by it.

“When markets, or headlines, make no sense, I find myself waiting to react until I read The 5 for that day. Your column often provides insights that I (and others) hadn't considered, and in my case at least probably wouldn't have. I respect and appreciate you, and I am quite sure that sentiment is shared among the majority of your readers.”

Dave: Thanks to everyone who took the time to write. Means a lot. Keeps me going.

Have a good weekend,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets