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

Left Chart – Debt Structure:

• S&P 500 (Large-Cap):

  • 72% of debt matures in 2028+

  • Only 6% is floating rate → High rate insulation

• S&P 400 (Mid-Cap):

  • 60% of debt matures in 2028+

  • 22% is floating → Moderate rate sensitivity

• Russell 2000 (Small-Cap):

  • Only 51% of debt matures in 2028+

  • 32% is floating → Most exposed to rising rates

Right Chart – Profitability:

• Russell 2000: ~40% unprofitable

• S&P 400: ~20% unprofitable

• S&P 500: ~5% unprofitable (lowest and stable)

💼 What This Could Mean for You

• 🏦 Large-Caps More Resilient:
  Stronger debt structure and profitability make the S&P 500 more defensive amid slow growth or high rates.

• 📉 Small-Cap Rate Sensitivity:
  The Russell 2000's high floating debt and low profitability increase vulnerability to tight monetary conditions.

• 📊 Large-Cap Outperformance:
  Without rate cuts or strong growth, mid-and small-caps may lag, favoring continued large-cap allocations.

🔁 Alternative Perspectives to Consider

• 📈 Growth Surprise Tailwind:
  If the economy accelerates unexpectedly, small/mid-caps could outperform via higher operating leverage.

• 🛠️ Valuation Gaps:
  Small-caps trade at discounts — could be a contrarian opportunity for long-term investors.

• 🔁 Rotation Risk:
  A dovish shift in macro policy (e.g., rate cuts) may trigger rotation into under-owned small/mid-cap names.

📊 What the Chart Shows

• McClellan Oscillator (Top Panel):
  Dropped below zero on May 21, 2025, indicating short-term market weakness in breadth.

• Bearish Divergence:
  While the S&P 500 reached new highs in early May, the Oscillator was trending down, showing that fewer stocks participated in the rally.

• Sharp Reversal:
  The oscillator fell from ~+90 to –27 in under a month — a significant deterioration in breadth momentum.

💼 What This Could Mean for You

• ⚠️ Caution on Rally Strength:
  Weakening breadth undermines rally durability — fewer stocks leading can signal a fragile advance.

• 🔁 Short-Term Weakness Risk:
  A negative Oscillator reading often precedes pullbacks or market consolidation.

• 🛡️ Consider Defensive Positioning:
  Traders may consider tightening stops or trimming aggressive long positions, especially in sectors that appear overbought.

🔁 Alternative Perspectives to Consider

• ⏳ Short-Term Noise:
  The Oscillator is short-term focused and may reverse quickly — not always a medium-term signal.

• 📈 Oversold Bounce Potential:
  A steep drop into negative territory can precede a bounce, particularly if the reading becomes deeply oversold.

• 🧭 Watch for Confirmation:
  Look for broader validation (e.g., support breaks or sector divergences) before concluding a trend change.

Key Terms

📈 Fed Funds Rate

• Definition: The interest rate at which banks lend reserves overnight, set by the Federal Reserve.

• Why It Matters: It’s the Fed’s main lever for influencing economic activity—raised to curb inflation, and lowered to stimulate growth.

📉 Market-Implied Neutral Rate (10Y/1Y Forward Rate)

• Definition: A bond market–based forecast of the interest rate expected to neither stimulate nor restrict the economy in the future.

• Why It Matters: Reflects investor consensus on long-run policy stance and growth/inflation expectations.

🟩 FOMC “Dots” (Longer Run Neutral Rate Estimate)

• Definition: The Fed’s internal projection of the “neutral” interest rate, published in the dot plot.

• Why It Matters: Offers long-term guidance on where the Fed sees rates settling in a balanced economy.

📊 What the Chart Shows

• Fed Funds Rate (Purple Line):
  Has recently fallen and now aligns closely with the Market-Implied Neutral Rate (Blue Line — 10Y/1Y forward rate).

• FOMC Neutral Rate Estimate (Green Line):
  Remains well below both the Fed Funds Rate and market-implied neutral rate.

• Key Insight:
  Current policy is no longer restrictive compared to long-run market expectations — it has entered a more neutral stance.

💼 What This Could Mean for You

• 🟦 Policy in Balance Zone:
  The Fed appears to be in a pause/evaluation mode, with policy neither tightening nor stimulating.

• 💵 Rate-Cut Urgency Reduced:
  Unless inflation data worsens materially, there’s less pressure to cut rates imminently.

• 📊 Sensitivity to Data Increases:
  Markets may now react more sharply to growth or inflation surprises, given the neutral policy backdrop.

🔁 Alternative Perspectives to Consider

• ⚠️ Neutral Rate Uncertainty:
  The disparity between market-implied vs. FOMC estimates suggests policy stance could still be misjudged.

• ⏳ Lagged Policy Effects:
  Past hikes may still dampen economic activity — neutral now ≠ neutral impact.

• 🧠 Market vs. Fed Disconnect Risk:
  A mismatch between market expectations and Fed policy bias could spur volatility in yields and positioning.

📊 What the Chart Shows

• 10-Year Treasury Yield Range:
  Has fluctuated between ~3.3% and 5.0% since early 2023, triggering repeated shifts in equity market narratives.

• Narrative Cycles:
  Themes like “Recession Fears,” “Soft Landing,” and “Higher for Longer” rotate in sync with yield changes, every ~4–5 months.

• Yield Zones and Equity Impact:

  • 🔴 >4.75%: Broad stress for all equities

  • 🟠 4.25–4.75%: Pain for rate-sensitives & low-quality stocks

  • 🟡 3.75–4.25%: Minimal equity impact

  • 🟢 3.25–3.75%: Broad benefit for equities

  • 🔻 <3.25%: Signals recession fears / return to ZIRP

💼 What This Could Mean for You

• ⚖️ Expect Ongoing Volatility:
  Narrative churn highlights macro uncertainty — long-term positioning may be more reliable than chasing short-term themes.

• 🧩 Use Yields as a Style Signal:
  10Y yield can guide shifts between value vs. growth, quality vs. speculative, cyclicals vs. defensives.

• 🔁 Diversify Narratives:
  In a fractured market environment, barbell strategies or mixed-duration fixed income can offer balance.

🔁 Alternative Perspectives to Consider

• ⚠️ Yield-Growth Decoupling Possible:
  Sticky inflation or fiscal imbalances may keep yields high even in a slowdown, breaking the usual rate-growth link.

• 📉 Recession Not Fully Priced:
  Yield dips have rebounded — markets may still underprice hard landing risks.

• 💥 Policy Shock Risk:
  Fed shifts, elections, or geopolitics could disrupt this cycle and force more decisive market repricing.

📊 What the Chart Shows

• USD Sentiment Composite (Brown Line):
  Tracks a blend of:

  • 📰 News Sentiment (dark blue)

  • 🟩 Positioning (green)

  • 📘 Options Sentiment (light blue)

• As of May 2025:
  All three components are deeply negative, pushing the overall USD sentiment indicator to its most bearish level since Jan 2023 — near 3-year lows.

💼 What This Could Mean for You

• 🔄 Contrarian Opportunity:
  Historically, extreme bearish sentiment often precedes USD rebounds. Washed-out positioning may invite a mean reversion bounce.

• 🌐 Risk-On Macro Signal:
  Bearish USD setups frequently align with risk-on trades — strength in global equities and EM assets — reflecting optimism in global growth or Fed easing.

• 💰 FX Strategy Watch:
  If you trade or hedge currencies, this may be a vulnerable point for the USD — especially if strong US macro data flips sentiment quickly.

🔁 Alternative Perspectives to Consider

• ⏳ Bearish Can Persist:
  As in 2009 and 2017, sentiment can stay negative for months even as the USD drifts lower — a snapback may require a clear macro trigger.

• 🏦 Fed Divergence Risk:
  Persistent inflation or weakening global growth could revive USD strength via safe-haven demand or rate differentials, despite bearish sentiment.

• 🧨 Crowded Trade Reversal Risk:
  If the consensus short USD view is wrong and macro data surprises (e.g., hotter CPI or jobs), positioning could unwind violently.

📊 We Want Your Feedback!

Help us make this newsletter more useful for you — take 15 seconds to answer.

🗳️ What would you like to see more of in this newsletter? What can we improve?

👉 Reply with your thoughts — we read every response.

That’s it for today!

Best Regards,

Ultimate Alerts Team

P.S. 📌 Did we land in your inbox? Please make sure our emails arrive in your inbox where you can see them immediately.

Disclaimer

The content distributed by UltimateAlerts.com is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be based upon an independent investigation by a certified professional. Stocks/Assets featured in this newsletter may be owned by owners/operators of this website, which could impact our ability to remain unbiased. If you click on an affiliate link the website owner may receive compensation. Although we have sent you this email, UltimateAlerts.com does NOT specifically endorse this product nor is it responsible for the content of this advertisement. Please read and accept full disclaimer and privacy policy before reading any of our content: www.ultimatealerts.com/c/disclaimer/ and www.ultimatealerts.com/c/privacy-policy