Good morning,
Let’s get into the week ahead for markets because it’s a very big week on a number of fronts, excluding tariffs – which is so refreshing. Friday’s April employment number is an obvious focus. It is the freshest pulse reading on the economy. Wednesday’s Q1-25 GDP release will be quite interesting given the impact of tariff policy on trade in particular. Plus, there is a huge spread in the range of economist forecasts (+1.7% to -1.5%), suggesting a lot of room for surprise. A low figure would raise fears further that tariff policy could push the economy into recession.
The Treasury’s quarterly refunding announcement, released at the same time as the GDP figures, is not normally a big attention grabber. However, if GDP does come in light, the budget deficit will almost certainly rise along with more issuance. That is against the backdrop of a receding dollar and questionable foreign appetites for our Treasury bonds, and it’s easy to see why bond market participants will be laser focused on this data.
We also get four of the Mag 7 companies reporting on Wednesday and Thursday. Failure to deliver would likely fail to support the S&P 500 above the important round number of 5500 which it was able to climb above on Friday.
Pulling the lens back from the day-to-day trading, and looking at market trends, the market message appears to have shifted from being in a cyclical bull market to a cyclical bear market within a very mature secular bull market. On Friday, Ned Davis Research conducted a conference call titled: “Why Buying Right Now Is A Bad Idea”- I’ll explain the call, but we know all we need to know from that subject line.
Last month, for the first time since Oct ’23, NDR reduced their model’s equity allocation to underweight, they left bonds at overweight, and raised cash to neutral weight (neutral overall being 55/35/10 for the 3 asset classes). That’s helpful, but it does not answer the big question on every investor’s mind which is when to look to buy the dips on a market pullback. NDR has a variety of Watch reports to answer this. Its cyclical bear watch report is now on a bearish signal. Its bottom watch report shows insufficient evidence that a bottom for the selloff has formed. Its rally watch report – answering the question, have we entered a sustainable rally – also indicates a lack of rally potential. Lastly, their secular bear watch report is at concerning levels. Not calling for it yet, but one to keep an eye on.
It would seem to take a complete reversal of policy from the White House to reverse the trend change to a bear market. As a risk manager it doesn’t seem to make sense betting on a White House bailout.
See you Wednesday for a mid-week check-in.
Be well,
Mike