5/20/25 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

Retail investors’ market share surged to 36% in late April 2025, the highest on record, according to J.P. Morgan:

• 🟨 Yellow dashed line: 2025 YTD average = 21%

• ⚫ Grey dashed line: 10-year average = 12%

• This spike came amid low institutional and CTA activity and low trading volumes

💼 What This Could Mean for You

• 🧑‍💻 Retail Driving Momentum:
  Suggests individual investors may be fueling recent price gains, potentially chasing upside in a thin market.

• 🚨 Fragile Underpinnings:
  When retail flows drive low-volume rallies, they can reverse sharply if sentiment shifts.

• 📊 High Engagement:
  Retail activity remains well above historical norms, reflecting elevated interest and influence on price action.

🔁 Alternative Perspectives to Consider

• 🟡 Volume Context Matters:
  High retail share on low overall volume may exaggerate perceived influence.

• 🔴 Sentiment Exhaustion Risk:
  Sharp spikes in retail participation often precede short-term market fatigue or reversals.

📊 What the Chart Shows

This chart from Goldman Sachs Prime Brokerage shows that hedge fund positioning in U.S. software stocks is at a 5-year low as of May 8, 2025:

• Net Exposure (black line):
  Dropped to just under 11% of total U.S. net exposure — the lowest since 2020

• Long/Short Ratio (blue line):
  Near 2.0, also a 5-year low, signaling reduced conviction on the long side

💼 What This Could Mean for You

• 🔥 Squeeze Risk Rising:
  With many funds short, any strong earnings or macro tailwind could trigger a short-covering rally.

• ⚖️ Cautious Positioning:
  Hedge funds may be underweight software due to valuation concerns, slower growth, or rotation into other tech segments.

• 🔍 Watch for Rotation:
  A change in narrative or macro surprise could drive a sharp reversal in flows if sentiment shifts.

🔁 Alternative Perspectives to Consider

• 🟡 Fundamentals Still in Question:
  Declining exposure might reflect legitimate worries about margins, pricing power, or AI hype saturation.

• 🔵 Bearish Follow-Through:
  If recent gains were speculative and not supported by earnings, continued HF shorting could pressure prices.

• 🧯 No Catalyst, No Squeeze:
  Without a major upside catalyst (e.g. earnings, M&A, Fed pivot), shorts may persist and cap upside.

📊 What the Chart Shows

The chart compares:

• Manufacturers' Shipments of Nondefense Capital Goods ex Aircraft (dark blue line): a key measure of business investment

• NFIB Small Business Capex Plans (light blue line): the percentage of small firms planning capital expenditures in the next 3–6 months

Key observations:

• In April 2025, NFIB capex intentions dropped to 18%, the lowest since the pandemic trough

• The two series are loosely correlated (r = 0.29)

• Past drops in small business capex plans have often preceded or coincided with declines in actual business investment.

💼 What This Could Mean for You

• 🧱 Capex Soft Patch Ahead:
  Weak intentions from small firms may signal a slowdown in near-term business investment.

• 📉 Negative Signal for Equipment Stocks:
  Capex-sensitive sectors (e.g., industrials, machinery, software for small businesses) could face weaker demand.

• 🧭 Macro Caution:
  Declining investment signals softer growth momentum — a possible early recessionary indicator if the trend persists.

🔁 Alternative Perspectives to Consider

• 🟡 Large Firm Divergence:
  Mega-cap firms may continue investing aggressively (e.g., AI capex), offsetting small business weakness.

• 🔄 Volatility, Not Collapse:
  Capex plans are cyclical and noisy — a rebound could occur if financial conditions remain loose or sentiment stabilizes.

• 🔵 Policy Response Buffer:
  Weak small business data might increase pressure for Fed cuts or targeted support, cushioning the downside.

📊 What the Chart Shows

This chart compares:

• Hard CAI (Current Activity Indicator) – dark blue line: Based on tangible economic data (e.g., retail sales, industrial production)

• Soft CAI – light blue line: Based on surveys and sentiment (e.g., PMI, consumer/business confidence)

• Orange bars: The gap between soft and hard CAI, measured as a 3-month moving average

Key insight:

• The discrepancy between soft and hard data is now one of the largest since the 1970s, with soft indicators painting a much gloomier picture than hard data

💼 What This Could Mean for You

• 🧩 Uncertainty for Decision-Makers:
  Contradictory signals complicate investment and policy planning — stay nimble.

• ⚠️ Watch for Mean Reversion:
  These gaps often close — either hard data slows, or sentiment improves.

• 🔍 Sentiment Overhang:
  Businesses and markets may remain cautious despite decent fundamental performance.

🔁 Alternative Perspectives to Consider

• 🔄 Hard Data Lags:
  Soft indicators might be early warnings — hard data could deteriorate soon.

• 🟢 Soft Data Overreaction:
  Survey sentiment may reflect pessimism or geopolitical worries rather than real economic weakness.

• 🧭 Mixed Signals = Mixed Outcomes:
  This divergence could reflect sectoral bifurcation — e.g., strong goods production vs. weak services sentiment.

📊 What the Chart Shows

The chart tracks Lower 48 U.S. natural gas production (in billion cubic feet per day) from 2021 through 2025, highlighting:

• 2025 (orange): Production remains historically high, ranging around 104–106 Bcf/d

• Year-over-year trend: Steady gains each year from 2021 to 2025

• 2024 vs. 2025: 2025 production is higher than at the same time in 2024, reflecting a continued upward trajectory in supply

💼 What This Could Mean for You

• 🟢 Supply Abundance:
  Elevated production may cap natural gas prices, benefiting consumers and utility companies.

• ⚙️ Energy Sector Implications:
  High output supports midstream and infrastructure players (e.g., pipelines, storage).

• 🌍 Export Support:
  Strong supply helps meet growing LNG export demand, reinforcing the U.S. role in global energy markets.

🔁 Alternative Perspectives to Consider

• ⛔ Oversupply Risks:
  Persistently high output may pressure prices and hurt upstream profitability, especially if demand weakens.

• 🛢️ Weather-Driven Volatility:
  Seasonal events (e.g., winter storms or summer heatwaves) still pose short-term production risks.

• 🧩 Policy & Regulation Uncertainty:
  Shifts in climate or drilling policy could alter the current production trajectory.

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