5/16/25 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:

📊 What the Chart Shows

5-minute tick chart tracking the implied probability of a Fed rate cut across the next three FOMC meetings (June 18, July 30, and September 17):

• June 18 Cut (Red):

  • Probability has fallen sharply, now at just -8%

  • Declines accelerated after the ISM reports and the May FOMC meeting

• July 30 Cut (Green, assuming no prior cut):

  • Probability dropped from near certainty to -31%

  • Deteriorated steadily across multiple economic releases

• September 17 Cut (Blue, assuming no prior cut):

  • Still the most likely first cut, but probability has declined to -60%

  • Was previously fully priced in (>100%) as recently as early May

💼 What This Could Mean for You

• ⏳ Rate Cuts Likely Delayed:
  The market is walking back aggressive rate cut expectations as economic data remains resilient and inflation is sticky.

• 🏦 Policy Patience:
  The Fed appears in no rush to cut, aligning with recent hawkish tones and a data-dependent stance.

• 📉 Short-Term Yield Impact:
  Delayed cuts may keep short-end yields elevated, impacting bond portfolios and financing costs.

🔁 Alternative Perspectives to Consider

• 🟢 Data Could Surprise:
  A downside surprise in inflation or growth could quickly reignite rate cut bets.

• 🔁 Cut Expectations Can Flip Fast:
  As seen in early May, market pricing of Fed cuts can swing dramatically in response to single data points or Fed comments.

📊 What the Chart Shows

S&P Global IMI survey reveals sector outlook over the next 30 days based on net weighted balance (% bullish minus % bearish):

• Most Bullish Sectors:

  • Utilities

  • Financials

  • Healthcare

  • IT

• Slightly Positive:

  • Consumer staples

• Most Bearish Sectors:

  • Consumer discretionary

  • Energy

  • Basic materials

  • Industrials

  • Real estate

  • Communication services

💼 What This Could Mean for You

• 🛡️ Defensive Bias:
  Investor sentiment is strongest in traditionally defensive sectors like utilities, healthcare, and financials, suggesting caution about the near-term economic outlook.

• 💻 Tech Sentiment Improving:
  IT has moved back into positive territory, reflecting renewed confidence in growth-oriented sectors.

• 🚫 Risk-Off Toward Cyclicals:
  Strong bearishness in consumer discretionary, energy, and industrials indicates concern around economic softness and demand outlook.

🔁 Alternative Perspectives to Consider

• 📈 Contrarian Opportunity?:
  Historically, extreme bearish sentiment (e.g. in consumer discretionary) can present attractive entry points if fundamentals stabilize.

• 🏗️ Rotation Potential:
  If macro conditions improve, underweighted cyclical sectors could rebound sharply as positioning resets.

📊 What the Chart Shows

30+ day delinquency rates across major consumer credit categories (2005–2025), based on the Fed/Equifax Consumer Credit Panel:

• Stable Trends:

  • Mortgage, Auto, and HELOC delinquency rates remain low and stable post-pandemic

  • Credit Card delinquencies have ticked up but remain well below Great Financial Crisis levels

• Student Loans:

  • The only major source of deterioration

  • Delinquency rates surged after the pandemic-era pause ended

💼 What This Could Mean for You

• ✅ Consumer Health Still Solid:
  Low delinquencies in most categories indicate that household balance sheets remain in good shape.

• 🧮 Limited Systemic Risk:
  No signs of broad-based consumer credit stress outside student debt.

• 📉 Muted Risk to Lenders:
  Stable trends in auto and mortgage debt suggest manageable exposure for banks and credit markets.

🔁 Alternative Perspectives to Consider

• ⚠️ Student Loan Pressure Building:
  The sharp rebound in student loan delinquencies could eventually spill into other debt categories.

• 📈 Card and Auto Deterioration:
  While still low, rising delinquency in credit cards and auto loans may hint at pockets of strain.

• 🕵️‍♂️ Lagging Indicators:
  Delinquencies may rise with a lag if labor markets weaken or if rates stay elevated for longer.

📊 What the Chart Shows

Breakdown of the U.S. inflation rate by category (2019–2025), highlighting the contributions of:

• Services:
  The most persistent driver of inflation over the past two years.

• Food:
  Moderate contributor through 2022–2023, now easing.

• Goods:

  • Major driver in 2021–2022 during supply chain stress

  • Subtracted from inflation in 2023 and early 2024

  • In April 2025, goods prices contributed positively to inflation again for the first time since 2023

• Energy:
  Volatile, but previously a large inflation component; now muted

💼 What This Could Mean for You

• 🧯 Services Inflation Easing:
  With services making up ~77% of the economy, the downtrend supports disinflation.

• 🔻 Goods Deflation Fading:
  The end of goods disinflation may slightly offset overall progress, but isn't dominant.

• 🧮 Tariff Impact May Be Limited:
  Given the services’ weight, even higher goods prices from tariffs may not reverse the broader disinflation trend.

• 🏦 Long-Duration Bonds in Play:
  A clearer path to lower inflation could justify revisiting long U.S. Treasuries.

🔁 Alternative Perspectives to Consider

• 📦 Tariff Uncertainty:
  Long-term effects depend on tariff structure and pass-through, and there is some risk of renewed goods inflation.

• 📈 Energy as a Swing Factor:
  Geopolitical shocks or policy missteps could reintroduce energy price pressures.

• 🧨 Services Stickiness Not Resolved:
  Wage pressures or regulation (e.g., healthcare) could stall progress in core services inflation.

📊 What the Chart Shows

The Chicago Fed’s National Financial Conditions Index (NFCI) as of the week ending May 9, 2025:

• NFCI: –0.51 → Indicates looser-than-average financial conditions

• Component Breakdown:

  • Risk: –0.23

  • Credit: –0.14

  • Leverage: –0.14

💼 What This Could Mean for You

• 🟢 Supportive of Risk Assets:
  Looser conditions typically favor equities and credit markets by reducing financing stress.

• 🏦 Fed Flexibility:
  This backdrop allows the Fed to keep rates elevated without immediately tightening credit conditions.

• 📉 Lower Financial Stress:
  No signs of broad strain across credit, risk, or leverage metrics — positive for economic resilience.

🔁 Alternative Perspectives to Consider

• ⏳ Lagging Indicator:
  The NFCI may not capture emerging risks until they manifest more clearly — useful but not predictive.

• 🔄 Disconnect Risk:
  Market looseness may conflict with tight policy intentions, especially if inflation pressures resurface.

• 🧯 Policy Impact Delayed:
  Continued looseness may delay the intended effects of restrictive monetary policy.

That’s it for today!

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Best Regards,

Ultimate Alerts Team

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