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:

📊 Federal Tax Collection Snapshot (Mar 28–Apr 21, 2025 vs. same period 2024)

• Total tax collections up +8.4% YoY — April bounced back after a weaker March.

• Self-employment taxes up +13.2% — strong activity in the gig/freelance sector.

• Withheld employment taxes up +4.4% — payrolls still expanding, though growth is slowing.

• Corporate taxes up +6.0% — businesses are still profitable.

• Other taxes down -14.1% — likely tied to lower imports and customs issues.

🧠 Analyst Insight (Vincent Deluard’s View)

• April’s strong receipts undercut the argument for imminent Fed rate cuts.

• The labor market remains tight — firms are “hoarding” workers, not laying them off.

• Tariffs are failing to boost customs revenue significantly; enforcement is inconsistent across industries.

• Overall, The Economy may slow, but it is likely heading toward stagflation, not recession (at least according to tax collections).

💼 What This Could Mean for You

• Don’t expect rate cuts too soon — borrowing costs may stay higher through mid-2025.

• Investors: Favor companies with strong cash flow and pricing power in a stagflation scenario.

• Savers: High interest rates still support solid yields in money markets and Treasuries.

• Job security remains decent, but wage growth might not keep pace with inflation long-term.

📊 Key Takeaways from the Chart

• The chart compares:

  • 🟩 Foreign Holdings of US Stocks (annual change, green line)

  • ⚫ MAG7 Market Cap (annual change, black line – the 7 mega-cap tech giants)

• Recent collapse in both:

  • MAG7 market cap dropped sharply in 2025.

  • Foreign holdings of US equities also turned negative — investors are pulling back.

• Implication: The relationship suggests that foreign flows and MAG7 valuations could be linked.

• Papic’s Message: This drop isn't the "exodus" yet — implying that much larger foreign selling could still come.

🔄 Counterpoints & Alternative Perspectives

• 🟠 Correlation ≠ causation — MAG7 and foreign flows may be reacting to broader macro shifts (e.g., rates, dollar weakness), not just each other.

• 🟣 Domestic buying may offset foreign exits, especially via ETFs and retirement flows.

• 🟡 Foreign “selling” could reflect valuation base effects, not actual capital flight.

  • "Valuation base effects" means: if U.S. assets (like stocks) become more expensive compared to others (say, European or Asian stocks), foreigners might naturally reduce their holdings because things look expensive — not because they are scared or trying to move money out urgently.

• 🟤 Geopolitics plays a role — trade policy and currency weakness/strength may deter reallocating capital elsewhere.

💼 What This Could Mean for You

• Last decade: Even though U.S. stocks and assets were expensive (high valuations) and the U.S. dollar was strong, foreign investors still bought heavily — because U.S. assets looked safe and returns were attractive.

• Now: The world is changing — we're possibly moving into a period of:

  • (IF persistent) Weaker U.S. dollar (hurts foreigners' returns when they bring money back to their own currency)

  • Lower U.S. valuations (less excitement to chase expensive U.S. assets)

• Result: This double negative could make foreigners less eager to invest in the U.S.

🏦 Why this matters:

• Foreign buying has been a big support for U.S. stocks and bonds.

• If foreigners slow down or sell, it could pressure U.S. asset prices lower.

In short:
✅ Past: High prices + strong dollar didn't scare foreigners.
🚫 Future: Weak dollar + falling prices could finally turn foreigners away.

📊 Key Takeaways from the Leading/Lagging Ratio Chart

• Leading indicators relative to lagging indicators have collapsed sharply, hitting the lowest level since the 2008 financial crisis.

• Historically, every sharp downturn in this ratio (circled) has been followed by a U.S. recession (gray bars).

• The last major peak was around December 2021, indicating economic momentum peaked over three years ago.

• Current reading is deeply negative — typically associated with recessions in the past (seen in cycles: 1969, 1974, 1980, 1990, 2001, 2008, 2020).

💼 What This Could Mean for You

• Prepare for more volatility — markets tend to weaken before and during economic slowdowns.

• Opportunities will come — sharp drops often lead to attractive entry points for investors.

• Emergency fund importance — having a liquidity buffer will be crucial if a recession occurs and layoffs happen.

📊 Key Takeaways on Oil Market at $50 WTI for 16 Months

• Shale producers will survive — U.S. shale breakevens have improved; most large players can profit at ~$50.

• OPEC+ members will survive — many need higher prices, but can withstand $50 short-term with fiscal adjustments.

• Canadian oil companies will survive, especially low-cost oil sands producers with existing infrastructure.

• Offshore production will survive — large projects will already be funded, and the focus will be on managing operational costs.

• Shipping companies will survive — crude transport remains essential, though margins may tighten.

• Oilfield service companies will suffer — lower prices discourage new drilling, reducing demand for services.

💼 What This Could Mean for You

• Large-cap integrated oil companies (with refining and chemicals arms) may offer safer exposure.

• Oil services ETFs may remain weak unless drilling activity rebounds.

• Expect more consolidation — mergers among weaker oilfield services and exploration firms likely.

📊 Key Takeaways from the Chart

• Q1 2025 GDP growth is forecasted to be close to 0%, the weakest in nearly three years.

• US economic growth had slowed starting late 2024, even before the widening trade gap.

• Past trend: Growth was relatively strong from late 2022 to mid-2024, but momentum faded afterward.

• Trade imbalance is now adding additional pressure to an already softening economy.

🔄 Counterpoints & Alternative Perspectives

• 🟠 One quarter doesn’t define a recession — Q1 could be a soft patch before a rebound later in 2025 (Our View: unlikely to be the case - more likely prolonged for 2025 and 2026).

• 🔵 Fed pivot could help — if weakness persists, the Federal Reserve might cut rates, supporting growth (Our View: would also support inflation, not good)

• 🟤 Inventory adjustments often distort early-year GDP numbers — revisions later could paint a better picture.

💼 What This Could Mean for You

• Be cautious with growth-sensitive assets — tech (high inflation is what hurts), small caps, and cyclicals could underperform if growth remains weak.

• The bond market may benefit (lower yields) from slower growth, strengthening the case for bonds and rate-sensitive assets

• Stay diversified — uncertainty in early 2025 suggests keeping a balance between defensive (bonds) and growth assets (stocks).

That’s it for today!

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Best Regards,

Ultimate Alerts Team

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