5/12/25 Charts & Ideas: What Markets Are Telling Us

06/28/2025 | Unsubscribe

Good Morning!

Here are some important charts and ideas capturing the latest trends in US markets to help you understand what is happening from multiple different perspectives:

🔍 U.S.–China Trade Tensions: Earnings Risk in Focus

• 🇺🇸 Trade Deficit = $295B

• 🇨🇳 S&P 500 Revenue from China = $1.2T (~7% of total index revenue)

• 🏬 Key U.S. brands (Apple, McDonald’s, Walmart) generate major revenue in China.

• ⚠️ Rising Tariff Risks:
  Import tariffs could trigger Chinese retaliation, threatening U.S. multinationals' top lines.

• 📉 Market May Be Underpricing This Risk

💼 What This Could Mean for You

• 📊 Caution on China-Exposed Megacaps:
  Tech, discretionary, and industrials face elevated EPS risk.

• 🧾 Diversify Exposure:
  Favor firms with domestic or non-China EM revenue.

• 📉 Watch for Earnings Revisions:
  Trade retaliation could reduce S&P 500 profit estimates.

• 💵 Focus on Real Risk:
  Revenue loss > trade deficit headlines — earnings drive stock prices.

🔁 Alternative Views to Consider

• 🟢 China = Long-Term Opportunity:
  Structural consumption growth still supports future upside.

• 🟠 Tariffs = Cyclical Tools:
  It could ease once permanent less drastic tariffs are in place or if global growth weakens.

• 🔵 Valuations May Already Reflect Risk:
  Multinational P/Es may already discount some geopolitical drag.

🔍 Risk Appetite Fading — GS Indicator Near Neutral

• 📉 GSRAII Approaching Neutral:
  Investors no longer risk-averse, but not chasing risk either.

• 🔄 Momentum Cooling (GSRAIM):
  3-month gains fading — bullish sentiment losing steam.

• 🧭 Historically a Pivot Zone:
  Neutral levels often precede inflection points in markets, not extremes, but turning points.

💼 What This Could Mean for You

• ⚖️ Markets in a Wait-and-See Mode:
  Neither fear nor euphoria — a time for caution and quality.

• 🧠 Focus on Fundamentals:
  Favor companies with strong balance sheets and reasonable valuations.

• 🪙 Avoid All-or-Nothing Bets:
  This is a choppy environment — not ideal for high-leverage trades.

• 📊 Watch +1 Breakout:
  A move above +1 = risk-on confirmation → bullish for cyclicals, beta.

🔁 Alternative Views to Weigh

• 🟢 Plenty of Cash on Sidelines:
  Macro stability could reignite upside—neutral ≠ bearish.

• 🔴 Momentum Peaking?
  Fading sentiment may lead to consolidation or correction in risk assets.

• 🟠 Shock Sensitivity High:
  At neutral, markets are vulnerable to surprises (earnings/geopolitical).

🔍 Consumer Pessimism Hits Highest Since 2011

• 📉 48.5% Expect Stock Declines (Next 12 Months):
  Conference Board data shows peak bearish sentiment — worst since 2011.

• 🧠 Historically Contrarian Bullish:
  Past sentiment spikes (2009, 2011, 2016, 2020) often preceded market rallies.

💼 What This Could Mean for You

• 💡 Opportunity in Fear:
  Elevated pessimism may be a long-term entry point, especially if fundamentals remain stable.

• 🛡️ Stay Disciplined:
  Don’t go “all-in” — wait for technical or macro confirmation (reduces upside).

• 🧾 Favor Resilient Sectors:
  Look to healthcare, staples, and quality ETFs while sentiment resets.

🔁 Alternative Views to Weigh

• 🔴 Fear Can Linger:
  2008 showed sentiment spikes don’t always mark bottoms.

• 🟡 Macro Risks Still Real:
  Weak earnings or sticky inflation could validate bearish views.

• 🟢 Soft Landing = Bullish Reversal:
  Rate cuts + inflation moderation could unwind fear and fuel upside.

🔍 Global Valuation Gap Widens — Rare Opportunity?

• 🌍 Deep Discount:

  • S&P 500 P/E: 20.1x

  • ACWI ex-U.S. P/E: 13.5x → ~33% discount, near 2σ below 20-year avg.

  • Long-term average gap: -18.2%

• 📉 Sector-Wise Disparities:

  • Biggest discounts: Tech, Financials, Consumer Discretionary

  • Minimal: Health Care, Comm. Services

💼 What This Could Mean for You

• 💸 Mean Reversion Potential:
  International equities may outperform if the valuation gap narrows.

• 🌐 Reduce U.S. Overexposure:
  Diversify away from expensive, concentrated U.S. tech.

• 🛠️ Sector Targeting Pays:
  Focus on international tech, financials, and consumer ETFs.

• 📊 Long-Term Return Boost:
  Lower entry valuations = enhanced compounding potential.

🔁 Alternative Views to Consider

• 🟥 Cheap ≠ Catalyst:
  Discounts may persist without earnings or geopolitical clarity.

• 🟠 Currency Risk Matters:
  Strong USD could offset foreign equity gains — consider FX hedging.

• 🟢 Reform Tailwinds Ahead:
  Markets like Japan & Emerging Europe are showing signs of governance shifts that could drive re-ratings.

🔍 U.S. Housing Shortage Persists Despite Construction Uptick

• 🏗️ Only 1.4M Units Under Construction
  Far below what's needed to close the estimated ~3M unit gap.

• 🏚️ Shortfall Range: 1.5M–5.5M Units
  Based on Harvard, Moody’s, Fannie Mae, and Freddie Mac data.

• 🧮 Future Demand Not Priced In:
  Household formation (immigration, family growth) will widen the gap.

• 📈 Local Apartment Oversupply ≠ Structural Fix:
  Urban markets may see temporary oversupply, but long-term undersupply remains.

💼 What This Could Mean for You

• 🏢 Long-Term Multifamily Upside:
  Persistent shortage = rent support, especially in underbuilt regions.

• 💰 Real Estate Still Investable:
  Build-to-rent & multifamily REITs may benefit from supply-demand imbalance.

• 🏠 Home Prices Supported:
  Low for-sale inventory may prevent major price corrections.

• 🚫 Don’t Panic Over Urban Vacancies:
  Local oversupply is short-term and cyclical.

🔁 Alternative Views to Consider

• 🟥 Pipeline Risk:
  Construction delays, costs, and financing tightness may reduce deliveries.

• 🟠 Policy Bottlenecks:
  Without zoning reform, structural constraints persist.

• 🟢 Growth in Affordable Cities:
  Expect migration to suburbs/secondary markets if major metros remain unaffordable.

That’s it for today!

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Best Regards,

Ultimate Alerts Team

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