Today's Charts & Ideas: What Markets Are Telling Us

05/02/2025 | 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:

📊 Key Takeaways

• Left Chart: Overall Financial Conditions

  • After tightening sharply in the past few months, financial conditions have eased in the last 2 weeks.

  • Despite the rebound, conditions remain tighter than through most of 2024, still on a year over year basis relatively restrictive for the economy.

• Right Chart: Year-to-Date Contributors

  • The biggest drivers of tighter conditions are credit spreads (red) and Equity declines (green).

  • Long rates (gold) and FX (purple) also added to the tightening earlier, but are stabilizing.

  • The easing in late April came from moderating credit spreads and stocks recovering.

🔄 Counterpoints & Alternative Perspectives

• 🟠 Short-term easing may reverse — if inflation surprises or global risk-off sentiment returns.

• 🟡 Still restrictive vs. history — easing isn’t the same as being loose; borrowing costs remain elevated.

• 🔵 Fed may delay cuts — easing conditions may give the Fed more time to watch data before acting.

• 🟣 Market-led easing ≠ broad economy relief — small businesses and consumers still face tighter lending standards.

💼 What This Could Mean for You

• Volatility may ease near-term — looser conditions often support risk assets (stocks, credit).

• Risk-on assets may bounce, but stay cautious — conditions are better, not great.

• Bond markets may still offer an opportunity if credit conditions ease further.

• Watch credit spreads and FX — their movement is key to whether easing continues or reverses.

📊 Key Takeaways: Foreign Investors Are Pulling Back from US Markets

🧾 Bonds

• Figure 1 & 3:

  • ETF and foreign investors' fund flows into US bonds have dropped sharply since late 2024.

  • EPFR data confirms this retreat — deepest bond outflows in over two years.

📉 Equities

• Figure 2 & 4:

  • Foreign ETF flows into US equities are also declining, falling from 2024 highs.

  • Fund flows (Figure 4) are “less bad” but still show significant cooling since January 2025.

🔄 Alternative Perspectives & Counterpoints

• 🟠 Temporary pullback? Investors may pause due to macro uncertainty or wait for better entry points.

• 🟡 Currency hedging effects — a stronger dollar in early 2024 may have deterred inflows; a weaker dollar now could reverse the trend.

• 🔵 Domestic demand may offset this — US-based investors and institutions could absorb some foreign selling.

• 🟣 Rotation, not exit, money may reallocate toward non-US assets due to valuation or policy shifts.

💼 What This Could Mean for You

• Markets may stay volatile — declining foreign support can amplify downside swings in bonds and stocks.

• Watch the dollar and yields — if disinvestment continues, it could pressure the dollar and drive higher rates.

• Gold and international assets may benefit if foreign capital rotates away from US holdings.

• Investors should stay diversified — consider non-US exposure, commodities, or defensive allocations to weather capital outflows.

📊 Key Takeaways from the Chart (Goldman Sachs)

• Timeframe: The Chart shows median 2-week S&P 500 returns for each half-month period since 1950.

• Highlighted Insight: The first half of May (1H_May) ranks the 4th weakest period, with a slight negative median return.

• Other Weak Spots: Historically weak returns also appear in:

  • 2H_June

  • 2H_September

  • 1H_February

🔄 Counterpoints & Alternative Perspectives

• 🟠 Seasonality ≠ destiny — historical averages don’t guarantee future performance in any given year.

• 🟡 Macro backdrop matters — Fed policy, earnings, and geopolitical context can override seasonal patterns.

• 🔵 The first half of May's weakness may be front-loaded tax or fund rebalancing, which is not true selling pressure.

• 🟣 Market positioning may differ now; seasonal effects may fade in AI-led or inflation-driven markets.

💼 What This Could Mean for You

• Caution in early May — historically, it was a weaker stretch, so it may warrant hedging or trimming risk.

• Don’t panic-sell — weakness is typically mild and short-term, not a sign of major trouble.

• Use dips strategically — May pullbacks have often led to summer rallies (1H_July is seasonally strong).

• Stay balanced — consider using seasonal softness to rotate or rebalance instead of exiting positions.

📊 Key Takeaways from the Chart (3Fourteen Research)

• Unusual divergence observed:

  • 10-Year Treasury Yield surged +40 basis points

  • U.S. Dollar Index (DXY) fell over 3%

  • This occurred during the “Liberation Day” panic (April 10–11, 2025)

• Historical rarity:

  • This combo has occurred only 12 times since 2000

  • Typically signals major stress or transition in markets

• Recent example (Apr 10-11, 2025):

  • S&P 500 fell -3.28%, while gold rallied +4.94% — showing flight to safety in hard assets

🧠 Interpretation & Context

• Normally, higher yields strengthen the dollar (more attractive to investors).

• Here, yields rose while the dollar fell, signaling a possible loss of confidence in U.S. assets or policy credibility.

• Gold’s rise during these events shows investors shifting to non-sovereign, non-fiat assets.

🔄 Alternative Perspectives & Counterpoints

• 🟠 Temporary dislocation? It could reflect short-term positioning, not structural change.

• 🟡 Geopolitical or policy-driven markets may have reacted to specific headlines unrelated to long-term trends.

• 🔵 Risk premiums are rising, not U.S. collapse — yields may have risen due to inflation expectations, not sovereign risk.

• 🟣 Foreign selling of Treasuries could push yields up while weakening the dollar.

💼 What This Could Mean for You

• Volatility is likely to persist — unusual cross-asset moves often precede larger shifts.

• Gold & commodities may outperform if confidence in fiat and U.S. assets keeps eroding.

• Be cautious with long-duration assets — bond volatility suggests yields may not stabilize soon.

• Stay diversified globally — weakening dollar and U.S. policy uncertainty may favor non-U.S. assets.

📊 Key Takeaways (CEO Sentiment: Jan → Apr 2025)

📈 Profit Forecasts

• "Increase" forecasts fell from 76% in Jan → 37% in Apr

• "Decrease" forecasts rose from 12% → 48% — nearly half now expect falling profits

🏗️ CapEx (Capital Expenditures) Forecasts

• "Increase" forecasts dropped from 56% → 26%

• "Decrease" responses surged from 12% → 41% — a sign of reduced investment confidence.

👥 Hiring Forecasts

• "Increase" forecasts declined from 60% → 29%

• "Decrease" responses jumped from 12% → 39% — indicating likely employment slowdown.

🔄 Alternative Perspectives & Counterpoints

• 🟠 Seasonal pessimism? CEOs often get cautious in Q2 before summer guidance cycles.

• 🟡 Macro uncertainty (Trade, policy, recession risks) may prompt a temporary pullback, not structural weakness.

• 🔵 Profit margins may still hold even with weaker revenue if cost-cutting accelerates.

• 🟣 CapEx & hiring lags GDP — firms might reverse course if the outlook improves.

💼 What This Could Mean for You

• Corporate caution is rising, suggesting slower earnings growth, impacting equity markets.

• Job growth may slow, especially in cyclical industries; consider strengthening emergency savings.

• Investors: Favor companies with strong balance sheets and low CapEx dependency.

• Watch for further downside risks in sectors reliant on capital spending or aggressive hiring (e.g., tech, construction).

• If sentiment reverses mid-year, markets may rebound strongly — stay nimble.

That’s it for today!

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Best Regards,

Ultimate Alerts Team

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