5/6/25 Charts & Ideas: What Markets Are Telling Us

05/09/2025 | 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:

🔍 S&P 500 Valuations Are Stretched Across the Board

• 🧮 19 of 20 metrics = Overvalued: Broad-based deviation from historical norms.

• 📈 Shiller PE: +99% Above Avg: Historically signals weaker long-term returns.

• 📊 Buffett Indicator: +135% Above Avg: Market cap far exceeds GDP.

• 🏷️ Pricey on Cash Flow & Sales: P/FCF and EV/Sales well above average.

💼 What This Could Mean for You

• ⚠️ Expect Lower Future Returns: High entry valuations = weak long-term upside.

• 📉 Bigger Drawdown Risk: High valuations = less cushion in selloffs.

• ⛑️ Weak Risk-Adjusted Returns: Not ideal for new capital deployment.

• 🛡️ Rebalance Exposure: Consider undervalued global equities, gold (depending on your time-frame), or inflation-linked assets.

• ⏳ Buy Pullbacks, Not Highs: Be valuation-aware despite short-term strength.

🔁 Alternative Views to Consider

• 🟢 “New Normal” for Tech?: AI-driven growth may justify high multiples.

• 🟠 Lower Rates Support Valuations: Falling yields reduce discount rate pressure.

• 🔵 Index Skew Matters: Megacaps distort — median stocks may be fairly valued.

🔍 Stagflation Risk Emerging: Prices Up, Orders Down

• 📈 Raw Material Costs Jumped: Prices Paid hit 48.4 in April — the highest since 2022.

• 📉 New Orders Collapsing: Regional PMIs show weakening demand.

• ⚠️ Classic Stagflation Setup: Rising costs + slowing growth = margin risk.

💼 What This Could Mean for You

• 🚫 Profit Squeeze Ahead: Companies without pricing power will feel the margin pinch.

• 🔄 Avoid Cyclicals: Manufacturing and materials are especially vulnerable.

• 🛡️ Seek Resilience: Favor firms with strong pricing power — e.g., healthcare, utilities, subscription tech.

• 📉 Watch Bond Exposure: Sticky inflation hurts duration — TIPS or short-duration bonds may help.

🔁 Alternative Takes to Consider

• 🟢 Temporary Spike?: Tariffs or supply shocks may fade, not actual inflation.

• 🟠 Fed May Stay Dovish: If growth slows, policy support could buffer markets.

• 🔵 Market May Already Price This In: Fear-driven pullbacks can create opportunity.

🔍 Trade Deals Move Slowly — Tariff Relief Won’t Be Quick

• 📊 Avg. Timeline: 18 months to sign, 45 months to implement a U.S. trade deal.

• 🚫 Fast Tariffs, Slow Reversals: Policy shocks hit quickly, but fixes drag.

• 🧭 Wide Variability: Panama took 102 months, Jordan just 18 — high uncertainty = persistent risk.

💼 What This Could Mean for You

• ⚠️ No Quick Fix: Tariff pain may persist well into 2026+.

• 🏭 Avoid Exposed Sectors: Industrials, semis, logistics, autos at risk.

• 📉 Lingering Earnings Pressure: Multinationals won’t rebound fast.

• 🔍 Go Domestic: Favor sectors tied to U.S. demand — utilities, healthcare, staples.

🔁 Alternative Views to Consider

• 🟢 Political Pause Possible: Tariffs may ease before elections, even without formal deals.

• 🟠 Markets Front-Run Policy: Signals can move stocks before paperwork catches up.

• 🔴 Geopolitical Drag = Safe Haven Flows: Could boost USD, Treasuries, or insulated markets.

🔍 Systematic Funds Are De-Risked to Extreme Lows

• 📉 Equity Exposure ≈ 20%: Lowest since the COVID crash and late 2018 — below even August 2024’s reset (~50%).

• 📊 Historic Washout: Sign of deep risk aversion — systematic funds not supporting the market yet.

• 📐 Bottom Zone Reached: Past lows formed in the 25–40% range, but no technical confirmation yet.

💼 What This Could Mean for You

• ⚠️ Dip-Buyers Absent: Vol-linked funds still in sell mode — near-term pressure may persist.

• 📉 Fully Allocated? Brace for Volatility: Markets may lack institutional buying support in the short term.

• 🛒 Under-Allocated? Start Nibbling: Historically, these washout zones precede strong rebounds.

• 🧯 Short-Term Pain, Long-Term Gain: If technicals confirm, upside can be significant (a lot of this could have already happened).

🔁 Alternative Views to Weigh

• 🟢 Sentiment Near Max Pessimism: Even mild good news could spark a sharp rally.

• 🟠 No Retest Yet: Capitulation or second leg down may still be ahead.

• 🔴 Volatility Can Linger: Post-crash churn (like 2020) could delay a clean recovery.

🔍 Asset Correlations Are Spiking — Diversification at Risk

• 📈 Correlations Near +0.3: Highest since 2019 (and 2020) — stocks, bonds, and the dollar moving together.

• 🔗 Typical offsets breaking down: Normally, uncorrelated assets are now aligned.

• 🔄 Diversification Benefits Fading: Classic portfolio buffers may not work.

💼 What This Could Mean for You

• ⚠️ Diversification Weakness: 60/40 portfolios could see simultaneous drawdowns.

• 💸 Volatility Risk Rising: High correlation = stress in the system (e.g., inflation, Fed policy).

• 🛡️ Time for Alternatives: Consider gold, cash, commodities, or volatility hedges. Use tactical or risk-parity strategies.

🔁 Alternative Views to Consider

• 🟢 Could Normalize Soon: Fed clarity or geopolitical calm may reset correlations.

• 🟠 One Narrative Driving All Trades: Pivot bets and macro alignment fueling synchronized moves.

• 🧠 Setup for Rotation: Elevated correlation may precede sharp dispersion and new winners.

📊 U.S. Housing Surges Ahead of Population Growth

• 🏘️ Record Housing Ratio: 148M housing units vs. 342M people = 43.3% ratio — highest ever, above 2008 bubble peak (42.8%).

• 🔼 Since 2000: Housing units +28%, population +21%.

• 🔁 Full Recovery Post-2008: Housing-per-capita now exceeds pre-crisis highs.

💼 What This Could Mean for You

• 🏠 Oversupply Risk Rising: Softening demand + high rates may lead to gluts in some regions.

• 📉 Home Price Pressure: Growth may slow or reverse in overbuilt markets.

• 💡 Invest Selectively: Focus on tight-supply, high-demand areas.

• 📊 CPI Impact: Shelter inflation may ease in 2025–2026.

🔁 Alternative Views to Consider

• 🟢 “Shadow Demand” May Absorb Supply: Millennials forming households late.

• 🟠 Not All Units Are Usable: Vacancies, second homes distort availability.

• 🔵 Local Trends Matter: Migration + zoning can still support prices regionally.

That’s it for today!

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Best Regards,

Ultimate Alerts Team

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