Bank Issues MAJOR Warning on Stock Rally

Well, so far selling May and go away is

not working out quite well as markets

are rallying to new highs, which comes

around the same time as UBS has quite

the bearish piece on what could happen

in the third quarter of this year. We

need to break it down. But first, it's

worth knowing that Q1 earnings are doing

really well. Obviously, we just had

Microsoft and Meta. Meta suggesting,

hey, maybe a little bit of advertising

hiccups in Asia and certain US export

markets. But beyond that, we're going to

spend more money on capex leading Nvidia

to rally. Microsoft back to growth.

Microsoft profit margins 69% on a gross

profit basis. These are incredible cash

cows fueling this Q1 momentum. Tesla

calls the board replacement thesis fake

news. We'll talk more about that. uh

FOMO buying momentum is back by the dip

is fully back. The removal of tariff uh

you know sort of threats uh are leading

to more hope momentum and markets are

pricing in more Fed pricing uh for cuts.

All this seems pretty bullish but is it?

And that's what we got to look at the

UBS piece for. After all, when we look

at oil markets, WTI under

58.50 not looking too good for global

growth perspectives. And that's remember

something important as a leading

indicator of uhoh, our market's starting

to price in a little oopsy dupsies.

Unemployment claims jumped this morning

and the PMIs we got this morning were

contractionary, but are they enough to

actually shake the stock market?

Probably not in the near term. But

that's where this UBS piece becomes

really interesting because this UBS

piece talks about the future. Not

looking back at Q1 or, you know, some of

the uncertainties that have now faded

from April, but rather focusing on Q3.

And boy, there was a lot of highlighting

in this piece because, well, take a look

at it. It needed it. First, in both

scenarios for the market, UBS believes a

bottom hasn't actually been made. Even

though we're up substantially, we've

almost fully recovered on the index

levels some of the pain that we've seen

uh in uh the S&P 500 and the NASDAQ.

They think that while we're past tariff

uncertainty, we will still see a

material impact on earnings growth,

which does not appear to be priced in.

valuations are likely to also adjust

downwards as US exceptionalism waines.

And yesterday you had Kla Harris talking

about how Donald Trump is leading the

charge for the worst man-made recession

ever. Yeah. Now who who knows if that's

going to be what we actually get. Jaime

Diamond seems to be pricing in as a base

case a recession this year which he

privately told investors. And I

personally think some of the banks are

getting a little bit more freaky with

compliance requirements, mostly because

I think they probably got phone calls

from their management staff going

tighten the ship. And what happens when

banks start tightening? Lending slows

down. And bearing in mind that 48% of

jobs are created by small businesses.

Maybe we're not so worried about what

Microsoft and Meadow really forecast for

the economy. We're more worried about

those smaller businesses anyway. But

take a look at this. In this first

scenario where current tears stay, the

market goes 13% lower from April 21 in

their opinion for creating a bottom. And

in a second scenario where we reduce

tariffs, they think markets can go 7%

below what we saw on April 21st. Now

they think that the bottom comes in

early third quarter. So Q3 that

obviously begins July. They say it's not

clear whether the US GDP will actually

fall into recession this year as the

collapse in imports will cushion the

decline. In other words, as we get away

from this front loading of, you know,

building up ahead of tariffs, they

actually think the GDP decline could be

cushioned because we won't be importing

as much. Remember in the GDP equation,

which is kind of important to look at,

in a GDP equation, you actually have

imports that are subtracted from GDP. So

when you subtract imports from GDP,

those are a negative. But when you

import less or fewer products, you don't

actually subtract as much and you end up

supporting GDP numbers. This could be

why we've seen such a volatile move in

the Atlanta Fed GDP numbers. First, jump

in over here. GDP. Here's the

calculation for that. Consumption,

inventory, investment, government

spending, plus exports minus imports.

So, I just made an analogy here. If we

usually export $50 and we import 100,

then from this we would subtract $50

from GDP. But if we then come in and

say, hey, we're going to export 50 and

import 50. So, in other words, we're

balanced, then we subtract nothing from

GDP. That's just a quick way for you to

understand uh that GDP calc a little bit

better. But also take a look at the

Atlanta Fed GDP numbers. They were

vastly negative all of Q1 and all of a

sudden they get rid of their gold

adjusted negative.7% GDP. They get rid

of their negative 2.4% GDP read and now

for Q2 the Atlanta Fed is actually

pricing in 2.4% GDP growth. Now, a lot

of people think that's going to be

because we're sort of going to get that

opposite momentum of what we had with

this rush and surge of imports leading

to this collapse of GDP for Q1. And

they're actually pricing in optimism

that we're back to growth for Q2, but

maybe back into a hole for Q3. And

that's I think where that UBS article is

interesting because that's going to be

what matters. And it's not clear when we

start pricing that in. I think probably

closer to June. So, I think we could

actually have a really bullish May here.

And so, what I've been advocating in the

alpha reports uh to course members is

I've been advocating uh a a trailing

stop strategy for stocks that you want

to diversify away from. So, if you're

like, "All right, maybe I've got a

little too much Tesla in my life. I've

got a lot, but I'm going to keep a lot,

but maybe I've got a little too much.

Maybe I do want to diversify away a

little bit." What you could do, what I'm

seeing a lot of people do is they're

setting trailing stops. So, a good to

cancel let's say 10% decline on Tesla.

So, that way if Tesla runs to 400 again

and then goes down 10%, you're selling

at about 360, right? That's just a quick

example of how you could potentially

play that. I see a lot of people doing

this and a lot of people are saying,

"Hey, Kevin, you you y'all going to keep

open that house hack fund raise uh you

know to give us time for those trailing

stops?" And so far, yes. The the answer

is we we we don't have a plan to close

this within like the next 30 or 60 days

here. This won't be open forever. you

know, invest in Houseack, get the 5%

yield, paid out on a monthly basis,

diversify into American real estate,

discounted fixer uppers, you get the

idea what we do at Houseack, open to

nonacredited investors. Uh, so, so I

think there's time to play that

strategy. And a lot of people are like,

hey, if I could just get another bounce

in the stock market, I've got more to

diversify. And that's actually exactly

what I think is going to happen in May.

That said though, UBSC's quote, "We

expect a steeper decline than is median

for a regular shallow recession, but

they also expect a faster recovery."

Now, I'm not really convinced that we

could see the fastest recovery possible

because you really need to wait for the

Fed to capitulate and that could take a

little longer for the Fed to be

convinced where uh you know, true panic

is and where the Fed really needs to

step in. After declines over the next

three months, we see markets recovering

ground in the second half of the year as

valuations begin to recover. But if

current levels of tariffs are still in

place, the market is only likely to

recover to levels around which it would

presently see. Now, they say if we see a

climb down in Chinese tariffs to 60%, we

see the S&P 500 recovering to 5,500 by

the end of the year. I mean, we're we're

kind of already there anyway, right? And

above that. So, this idea uh that you

know in May we're going to see it, I

don't know. I kind of agree with their

Q3 pain, but we'll see. Here's why. Or

here's what else they say. They say post

the recessions of the last 15 years, the

market has seen strong V-shaped

recoveries helped by very loose monetary

and fiscal policies. This time, the help

from policy, especially fiscal, is

likely to remain limited. In other

words, we might get those tax cuts, but

unless we get more than just a renewal

of the existing tax cuts, unless we get

substantially more, we don't really have

that much of a fiscal tailwind. So, they

think over the next 3 years, we have a

pretty much flat fiscal exposure. Uh,

and they think that trade and capex

expenditures will remain weak.

Obviously, if we look at Microsoft and

Meta, those are growing, but we've got

to look at the aggregate, not just these

companies. And the aggregate so far and

forward expectations for capex is

weakening and this could potentially

continue to weaken. So after a down 25

uh in a bottom in the second half, they

actually think we might only see a 5 to

6% return in the S&P 500 for 2026. Uh

and maybe back to double digits in 2027.

I actually think 2027 will be a banger

of a year. This is when we're really

like you get past midterms, so you get

stability with government. Not only do

you get stability with government, but

you're going to be probably through the

worst of whatever is going to happen.

Maybe the worst is already over. I don't

think so. Again, I think we rally for,

you know, the next few weeks and then we

potentially trailing stop out when true

data starts rolling over, jobs data, you

know, hard data, whatever. That's when

people are going to be begging the Fed

for a bailout. But anyway, they say Q3

uh if funding markets begin to break

liquidity and liquidity tightness

becomes a problem for businesses and

financial institutions, the Fed's early

arrival would help markets. But in this

case, markets which would have reached a

level well lower than what we have

penciled in for our forecast. In other

words, if we truly get to Fed panic, it

means stocks go down way lower. And

that's because high inflation or at

least high inflation expectations are

likely to make the Fed reactive and not

proactive. and we expect they would only

cut by September. Should inflation

outcomes be such that the Fed didn't cut

at all this year, the trajectory for

markets could actually be even worse. I

actually kind of agree with that. So,

uh, then we talk a little bit about the

imports on GDP. We talk about valuations

bottom before earnings do. So, they

think that equity multiples will trough

somewhere around 17 to 18 and that, you

know, multiples of around 21 to 25 just

won't be sustainable in the longer term.

So, in other words, take the bounce and,

you know, maybe use that as an

opportunity to take some money off the

table with trailing. I like trailing

stops because who says that the momentum

is going to turn around tomorrow? I

mean, look, yesterday the S&P 500 and

the NASDAQ were down 2% and they

literally recovered all of it by the end

of the day. That's a really incredible

move. Really, really impressive. Uh, so

I think you could see more of that again

in the near term. And that's where those

trailings become nice because now you

know if you have a trailing stop set

you're not you're not busted out at a 2%

move. Uh but uh you know you can kind of

follow the market up some more. Despite

Fed cuts, the cost of equity will remain

high. Okay, what else do we have here?

Gold remains the cleanest way to express

dollars. I disagree with this. I

actually think what happens is gold

rises when you have stagflation and

inflationary fears, but I really don't

see companies having a lot of ability to

pass every single dollar of price

increases onto their customers. Uh, and

so I see much more of a likelihood that

we end up with with deflation as the

market really really hits its pain

threshold in Q3, Q4. When the Fed

realizes that we're more likely facing

deflation, I think that's when you

really get the Fed bailout pretty

rapidly. They don't want deflation. It

makes the fiscal situation, you know,

with our US debt even worse. You know,

you want inflation, so you can inflate

away the debt. At least the government

does. Technically, consumers don't

really want inflation, right? But that's

the game that they're going to play. The

fact that reciprocal tariffs were paused

before they were even implemented says

that the US administration does care

about market pain like stock market pain

and market you know broader uh pain. Fed

may address growth concerns blah blah

blah. Okay. So then we get some charts.

I don't actually think I have much else

highlighted in this because the rest was

pretty boring and disclosures and

disclaimers. So uh that's a UBS take on

hey bottom Q3. I don't necessarily

disagree with that but I think we get a

rally before we get that pain. Now again

fueled by not only FOMO but fueled by Q1

earnings and otherwise. Now what about

Tesla this morning? So Tesla this

morning as expected came and this is

unpopular and it's why I put it at the

end of the video but I I like to use

logic uh and try to read between lines

as pos as much as possible and it's not

to be bearish. I actually like I said in

my video yesterday I think there are a

lot of benefits that Tesla could face

going into 2027. And I broke all of that

out yesterday, but I thought it was

really interesting that they wrote

Tesla, you know, earlier today there was

a media report erroneously claiming that

the Tesla board had contacted

recruitment firms to initiate a CEO

search. Okay, remember we talked about

this yesterday. We did a whole uh

breakdown of this in like a 30inut video

yesterday. Not mostly on this because we

thought it was going to be fake news. We

thought we would come out with a denial

on this, but also because you would end

up getting uh this this uh uh you know

argument from Tesla that hey this is

fake news uh that this is this is just

the mainstream media doing their

nonsense again. You know, we're focused

on growth. And then we talked about that

growth. We were talked about Whimo and

Zuks and we talked about Toyota and the

partnerships and we talked about Model 2

versus Model 2 and a half and all of

that in a 30-minute Tesla video

yesterday. You should watch it if you

haven't yet. But what's very interesting

is, and this I'm I'm putting this at the

end of the video for those of you who

appreciate logic and perspective. Listen

to this. Earlier today, there was a

media report erroneously claiming that

the Tesla board had contacted

recruitment firms to initiate a CEO

search at the company. This is

absolutely false and was communicated to

the media before the report was

published. The CEO of Tesla's Elon Musk

and the board is highly confident in his

ability to continue. So yesterday we

predicted that, you know, after the

earnings call, after Elon Musk saying,

"Hey, we're going to come back. I'm

going to or I'm going to come back. I'm

going to spend more time at uh uh at at

Tesla, we expected they'd come out and

argue that this is false." But I want

you to think about something for a

moment.

Right. In this Twitter post, this ex

post, they're suggesting the Tesla board

didn't

contact recruitment firms, but do you

know who is on the board of Tesla? Do

you see the first name that's on the

board of the Tesla directors? It's Elon

Musk. So, duh, the entire board didn't

contact

uh, you know, uh, a recruitment firm.

It's likely that, in my opinion, some

board members or maybe even one board

member reached out. In fact, if you look

at the article, board members reached

out to several executive search firms.

So, this sort of implies more than one.

It implies like maybe two board members,

but there are a bunch of board members.

The board collectively didn't look for a

new CEO. So, it's a true statement.

Tesla can truly say it is true that the

Tesla board did not contact recruitment

firms. Correct? Because the entire board

didn't. But is it true that all board

members did not? Maybe not. And that's

not what Tesla's saying either. So, I

think, you know, maybe that's

nitpicking. But and again, I have some,

you know, bullish thesis that we talked

about yesterday on Tesla, and we

expected Tesla to bounce on on an

argument that there would be a post

about fake news here. But I do think

when you when you logic this, it's like,

oh, okay. So, both things could be true.

Tesla board entirely

didn't. And some board members did

because they were starting to freak out.

But the good news is Elon's back, so

maybe it doesn't matter anyway.

Supposedly back. So, uh, as far as the

UBS piece, I think it's really important

to pay attention to the hard data. Uh,

and remember, and we talked about this

in the course member live this morning

as well, watch unemployment claims.

Really, you need them to spike over

300,000 for them to be concerning. Uh,

you did get a little bit of a spike this

morning along with challenger job cuts

uh, bouncing without the inclusion of a

lot of Doge. like Doge had very little

to do in the Challenger report this

morning, but the Challenger job loss

report really showed a ramp up in job

losses and that's not great. So, keep

that in mind that, you know, some of the

hard data is beginning to weaken. The

stock market is basically pricing in

zero of that weakening right now. Again,

great for trailing stops in the near

term. Probably not great for a setup

going into the third quarter. Anyway,

thanks so much for watching. Check out

househack.com. Open to nonacredited

investors. And we'll see you in the next

one. Goodbye and good luck. Why not

advertise these things that you told us

here? I feel like nobody else knows

about this. We'll we'll try a little

advertising and see how it goes.

Congratulations, man. You have done so

much. People love you. People look up to

you. Kevin Pra there, financial analyst

and YouTuber. Meet Kevin. Always great

to get your take.