Today's Charts & Ideas: What Markets Are Telling Us #23

06/27/2025 | 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 Charts Show

Exhibits 4 & 5: U.S. Bear Market History

• Average Declines (Exhibit 4):

  • Structural bear markets post-WW2: ~–50% drawdowns (deepest).

  • Event-driven bear markets: ~–20% drawdowns (shallowest).

  • Overall average decline: ~–30%.

• Average Duration (Exhibit 5):

  • Structural: ~40 months.

  • Event-driven: ~7 months.

  • Post-WW2 bear markets are shorter in length but still substantial in depth.

Exhibit 3: Global Impact of U.S. Corrections Over 10%

• When the S&P 500 drops >10%, major global markets typically follow:

  • Average declines:

    • S&P 500: –20%

    • MXAPJ: –20%

    • MSCI Japan: –17%

    • HSI: –19%

    • SXXP: –19%

    • FTSE 100: –15%

• Non-U.S. markets often fall in tandem — and sometimes more sharply (e.g., 2008, 2020).

💼 What This Could Mean for You

• 🔻 Diversification Isn’t Always a Shield:
  During major U.S. drawdowns, global equity markets typically decline too — geographic diversification alone may not protect capital in sharp corrections.

• ⏱️ Duration Matters:
  Event-driven bear markets tend to recover more quickly, while structural/cyclical selloffs demand longer holding periods and more conservative positioning.

• 🧭 Know Your Market Regime:
  Understanding whether the environment is structural, cyclical, or event-driven can help set realistic expectations for recovery and guide allocation strategy.

🔁 Alternative Perspectives to Consider

• 🔄 Correlation Isn’t Static:
  Correlations between markets shift with macro conditions — some regions (e.g., EM, commodities) may decouple during certain regimes.

• 🟢 Opportunities in Panic:
  Event-driven drawdowns often see faster recoveries, creating potential entry points for patient long-term investors.

• 🌍 Currency Effects Matter:
  These returns are in local currency — FX fluctuations can amplify or dampen portfolio performance for international investors.

📊 What the Chart Shows

• Chart Title: FMS US equity allocation lowest since May 2023

• Source: BofA Global Fund Manager Survey (May 2025)

• –38% net underweight in US equities — the lowest since May 2023.

• Extends the April 2025 level of –36%, signaling a continued trend of defensive positioning by global fund managers.

• Indicates broad skepticism toward US equity markets amid macro and valuation concerns.

💼 What This Could Mean for You

• 🧭 Contrarian Opportunity?
  Sentiment this bearish has historically preceded market rebounds, suggesting potential upside if fundamentals stabilize.

• 📉 Institutional Skepticism:
  Fund managers remain defensively positioned, likely due to valuation concerns, macro uncertainty, or better opportunities internationally.

• 🌍 Global Rotation:
  This reinforces a broader shift toward non-US equities, which could support international outperformance if the trend continues.

🔁 Alternative Perspectives to Consider

• ⏳ Bearish Can Stay Bearish:
  Positioning itself isn’t a catalyst — markets may remain under-owned if growth or earnings disappoint.

• 💸 Underweight ≠ Outflows:
  Underweight doesn't mean zero allocation — managers may still hold substantial US equity exposure.

• 🔄 Reversal Risk:
  A positive macro or policy surprise could prompt rapid reallocation back into US equities, driving sharp inflows.

📊 What the Chart Shows

• Metric: PRBLCRED Index (likely representing serious credit card delinquencies)

• Current Level: 12.310 as of Q1 2025 — highest since Q1 2011

• Change: Up +39.25% from a base of 8.840

• Implication: Signals a sharp deterioration in consumer repayment behavior

💼 What This Could Mean for You

• 📉 Consumer Stress Rising:
  The delinquency spike indicates growing financial pressure on households, possibly tied to elevated rates or a weakening labor market.

• 💳 Credit Tightening Ahead:
  Banks and lenders may respond by tightening standards, impacting consumer credit access and cost.

• 🏦 Bank Risk Watch:
  Rising delinquencies could pressure bank earnings, especially for those exposed to unsecured consumer lending.

🔁 Alternative Perspectives to Consider

• ⏳ Lagging Indicator:
  Credit stress may reflect past economic conditions rather than predict future deterioration.

• 💼 Sector Rotation Opportunity:
  Consumer discretionary may weaken, while staples or value stocks could benefit from changing spending behavior.

• 📈 Normalization from Ultra-Lows?
  Post-pandemic delinquency rates were artificially low due to stimulus — this may be a reversion to the mean, not a crisis signal.

📊 What the Chart Shows

• Metric: Real 5-year 5-year forward swap rates (US vs. Euro zone, in %)

• Current Levels:

  • US: Above 2.0%

  • Euro zone: ~0.5–1.0%

• Trend: Since 2022, a sharp divergence in long-term real rate expectations has emerged, reversing the pre-2022 period when both were negative.

💼 What This Could Mean for You

• 🌍 Currency Impact:
  If higher US real rates reflect a risk premium, it could weigh on the US dollar over time.

• 🚀 Growth Signal?:
  If the divergence stems from stronger US growth expectations, the USD could be undervalued, supporting US asset performance.

• 💵 Asset Allocation Shift:
  Higher US real yields may attract global capital, favoring US bonds and equities over Euro area investments.

🔁 Alternative Perspectives to Consider

• 🧯 Policy Path Divergence:
  The spread may reflect monetary policy divergence (ECB vs. Fed) more than growth, making it potentially temporary.

• 🪙 FX Market Already Adjusted?:
  Markets may have priced in the divergence, requiring new catalysts for further currency or asset moves.

• 🕰️ Structural Trend or Blip?:
  If driven by sustained US productivity, the spread may persist; otherwise, it could narrow as global inflation and policy normalize.

📊 What the Chart Shows

• Data Type: US import prices (excluding petroleum)

• April 2025:

  • +0.4% MoM — sharpest increase in recent months

  • YoY trend: Previously slowing, but April marks an upward reversal

• Price Basis:

  • Free on Board (FOB) — pre-tariff, pre-shipping, and pre-duties

💼 What This Could Mean for You

• 🚫 Tariff Relief Unlikely:
  Importers are not offsetting tariff impacts — prices are rising even before tariffs apply.

• 💸 Cost Pass-Through Risk:
  Rising upstream costs could flow through to end consumers and businesses, increasing inflation pressures.

• 📦 Trade-Exposed Sectors at Risk:
  Sectors reliant on imports (e.g., retail, manufacturing) may face margin pressure and price volatility.

🔁 Alternative Perspectives to Consider

• 📉 One-Off Spike?:
  April’s rise may be seasonal or supply-driven, not a new trend.

• 🌐 Global Input Pressure:
  Increases could reflect foreign exchange moves, commodity prices, or non-tariff global factors.

• ⚠️ Lagged Tariff Impact Ahead:
  Since prices are pre-tariff, future data may show further increases as tariffs work through the system.

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