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Uh oh.
Overnight futures traded flat until Europe began trading and then they traded between flat and down 20 points. No big deal. The 8:30 AM personal income and spending data hit but didn’t do much. The S&P opened down about 15 points and hung out there for 15 minutes. At that point, the sellers took over and the 10 AM U Michigan survey data provided the assist. The data showed negative surprises in sentiment and expectations as well as bumps up in expected 1-year and 5-10 year inflation rates. That’s not good. The S&P tried to stabilize from 10:30 to noon but fell further thereafter. The index traded around -110 for the bulk of the afternoon. Fed Funds priced rate cuts for 2025 at 63 bips this morning and they priced 73 by the end of the day. A 10 bip change in cutting expectations during the day is notable. Treasury yields fell across the curve too. Interestingly, capital flow was light at 94%. For the size of today’s drop, one would expect more capital movement.
What happened today was a slide into recession worry. The inflationary pressures due to the tariffs are going to complicate the Fed’s reaction. That means that if a recession shows up, the usual arsenal of the response might not be deployed. I don’t know what the possibilities might be but if the Fed has to worry about inflation at the same time as recession, it isn’t bullish.
The market isn’t pricing in recession yet either. Today it just started to consider it more. We’re waiting for Liberation Day now and the nonfarm payrolls too.
We’re sensitive to any and all growth-might-be-slowing data and policy announcements. If we get some next week, we’re going lower.
The charts are looking icky again as well. The low of early March was 5505. If we go below that, chartists are going to join the bear camp and things could get ugly.
Hang in there.
See you Monday, have a great weekend.
-Mike
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