Today's Charts & Ideas: What Markets Are Telling Us #31

06/28/2025 | Unsubscribe

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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:

Buying the dip has worked better in 2025 than in any year over the past 30+ years. Investors who bought S&P 500 stocks after a down day have, on average, been rewarded with the biggest next-day gains since at least 1993.

📊 Explaining the Chart

• The chart shows the average return of the S&P 500 the day after a down day — one way to measure whether “buy the dip” is working.

• In 2025, the average next-day return is around +0.4%, the highest on record.

• By contrast:

  • In 2018 and 2022, buying the dip resulted in negative next-day returns.

  • Most other years since 1993 hovered around +0.1% to +0.2%.

• This surge suggests that investor confidence and market momentum are very strong.

💼 What This Could Mean for You

• For active traders:

  • Momentum favors quick rebound strategies — dips are seen as buying opportunities.

• For long-term investors:

  • A rising tide lifts all boats, but such aggressive dip-buying may not last forever — avoid overconfidence.

• For cautious investors:

  • Strong “buy the dip” behavior can sometimes signal froth or complacency — don’t ignore fundamentals.

🔄 Alternative Perspectives to Consider

• Past success doesn’t guarantee future results — this behavior often fades quickly in volatile or tightening environments.

• If economic data weakens or inflation resurfaces, dips may no longer bounce so quickly.

• This trend may reflect AI-driven or quant fund activity, not necessarily retail conviction.

💡 One Possible Investor Takeaway

When markets reward dip-buying this consistently, it feels easy — but in markets, when it feels easy, it's often time to be cautious.

When bond yields (10-year Treasury) move above their longer-term trend, stocks react negatively to rising rates. We’ve now crossed that threshold again, meaning further yield increases could put downward pressure on equities.

📊 Explaining the Chart

• Top Panel:

  • Blue line = 10-year Treasury yield.

  • Orange line = its 100-day moving average (trend).

  • Gray bars = correlation between S&P 500 and yields (how stocks move relative to interest rates).

• Since 2022, when yields rise above the 100-day average, the correlation turns negative, meaning:

  • Higher rates → Lower stock prices.

  • Lower rates → Higher stock prices.

• Right now, the 10-year yield is above its 100-day MA, and correlation is shifting — this sets up a fragile environment for equities.

• Bottom Panel:

  • Breaks down S&P-yield correlation depending on whether yields are above or below their 100-DMA.

  • Clearly, when yields are above trend, stocks tend to struggle as rates rise, especially in recent years.

💼 What This Could Mean for You

• Rising yields may start to weigh on stocks, especially tech and growth sectors that are more sensitive to interest rates.

• If you're heavy in equities:

  • Consider how rising yields could impact valuations and risk appetite.

• If you're diversified:

  • Bonds may become more attractive as yields climb, offering potential portfolio balance.

• For homebuyers or borrowers:

  • Higher yields likely mean rising borrowing costs — keep an eye on mortgage or loan rates.

🔄 Alternative Perspectives to Consider

• Equities and yields have risen together in past cycles when growth was strong — a positive correlation can persist if economic momentum holds.

• Central bank shifts or geopolitical events can rapidly flip this relationship again — correlations are not fixed.

• If inflation cools unexpectedly, yields could fall even if growth holds up — a bullish setup for stocks.

💡 One Possible Investor Takeaway

Rates may have quietly crossed into dangerous territory, and when yields get ahead of their trend, stocks often start feeling the pressure.

Social media sentiment around the economy has surged to near all-time highs, suggesting that consumers feel much better about the economy, at least online. This contrasts sharply with traditional surveys, which show lingering pessimism.

📊 Explaining the Chart

• Dark Blue Line: GS Social Media Economic Sentiment Index (7-day average) — shows how positively or negatively consumers talk about the economy online.

• Light Blue Line: University of Michigan Consumer Sentiment — based on more traditional phone survey data.

• Z-scores on both axes help compare changes over time, regardless of scale.

• Right now:

  • The social media-based index is at its highest level since the data started, approaching +2 standard deviations (very strong sentiment).

  • Meanwhile, the Michigan survey shows continued weakness, staying below zero.

💼 What This Could Mean for You

• If you're a consumer:

  • This optimism might reflect real confidence in wages, jobs, or inflation cooling — or just a “vibe shift” online.

• If you're an investor:

  • High sentiment often correlates with strong market momentum, but excessive optimism can also signal a near-term peak.

• Businesses may see a boost in demand if consumers act on their upbeat outlook, increasing spending.

🔄 Alternative Perspectives to Consider

• Social media can exaggerate extremes — it might reflect the loudest voices, not the average household’s situation.

• The divergence from traditional sentiment could mean the online optimism is fragile or misleading.

• If sentiment is high but spending doesn't follow, markets could be disappointed.

💡 One Possible Investor Takeaway

Consumers are feeling good — or at least tweeting like they are — but when sentiment runs hot, it’s smart to ask if reality is keeping pace.

Continuing unemployment claims are rising in 2025, signaling a labor market that's softening slowly. While companies aren’t firing workers en masse, they also aren’t hiring aggressively — resulting in a gradual uptick in jobless claims.

📊 Explaining the Chart

• The chart shows continuing unemployment claims as a percentage of covered employment (people eligible for benefits).

• Each line represents a different year (2018–2025).

• Key insights:

  • In 2025, claims are higher than in any of the last five non-pandemic years at the same point in time.

  • This suggests people are staying unemployed longer or having a harder time finding new jobs.

  • The 2023 and 2024 curves were relatively stable — but 2025 is drifting upward earlier and more steeply.

💼 What This Could Mean for You

• Job seekers may face more competition and slower hiring responses — it may take longer to land offers.

• For households:

  • A slower job market can affect consumer confidence and spending plans.

  • Stay prepared: a rising trend in claims can lead to weaker wage growth or job security concerns.

• For investors:

  • Slower hiring could weigh on economic growth and earnings.

  • Sectors sensitive to employment (like retail or housing) might underperform if this trend continues.

🔄 Alternative Perspectives to Consider

• The rise in claims is still modest and could reflect seasonal or regional shifts, not systemic weakness.

• Slower hiring may be part of a "normalization" after years of overheated labor demand.

• The Fed may see this softening as a positive sign for controlling inflation — which could help stabilize rates.

💡 One Possible Investor Takeaway

The job market isn’t breaking — it’s bending, and that’s enough to shift momentum. A hiring slowdown may not make headlines, but it quietly shapes the economic path ahead.

The proposed House spending plan front-loads economic support, leading to larger deficits in the near term, but aims to tighten spending and reduce the deficit later in the decade. In short: gas now, brakes later.

📊 Explaining the Chart

• The chart shows fiscal changes vs. current policy, measured as a % of GDP from 2025–2034.

• Positive bars = larger deficit; negative bars = smaller deficit compared to the status quo.

• Early years (2025–2027):

  • Big spending items dominate: defense, border security, tax cuts, and incentives.

  • The total fiscal effect (blue line) increases the deficit by up to ~1.5% of GDP.

• Later years (2029–2034):

  • The mix shifts to spending cuts (e.g., Medicaid, SNAP) and limiting green subsidies, aiming to reduce the deficit.

  • By 2030–2033, the net effect becomes mildly deficit-reducing.

💼 What This Could Mean for You

• In the short term:

  • The plan could boost economic growth and asset prices through tax relief, defense spending, and business incentives.

  • But it may also worsen inflation or lead to higher interest rates if deficits concern markets.

• Over the long term:

  • Cuts to social programs and green subsidies may impact low-income households or climate-related investments.

  • If fiscal tightening begins just as growth slows, it could act like a drag on future economic momentum.

🔄 Alternative Perspectives to Consider

• A front-loading stimulus can be helpful in a fragile economy, but only if future restraint is credible.

• The long-term deficit reduction hinges on political follow-through, which may not materialize.

• In theory, this path might reassure bond markets, but skepticism about actual cuts could undermine confidence.

💡 One Possible Investor Takeaway

When governments hit the gas now and promise brakes later, it’s the timing and trustworthiness of the brakes that really matter.

That’s it for today!

Best Regards,

Ultimate Alerts Team

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