/ March 09 / Weekly Preview
-
Monday:
N/A
---
Tuesday:
Existing Home Sales (3.9M exp.)
---
Wednesday:
Core Inflation Rate YoY (2.5% exp.)
Inflation Rate YoY (2.5% exp.)
---
Thursday:
Initial Jobless Claims (215K exp.)
Housing Starts (1.34M exp.)
---
Friday:
Core PCE Price Index MoM (0.4% exp.)
Personal Income MoM
Personal Spending MoM
JOLTs Job Openings (6.84M exp.)
-
Monday:
Hewlett Packard Enterprise Company
Vail Resorts, Inc.
---
Tuesday:
Oracle Corporation
BioNTech SE
---
Wednesday:
SilverBox Corp IV
UiPath, Inc.
---
Thursday:
Alibaba Group Holding Limited
Adobe Inc.
Dollar General Corporation
Ulta Beauty, Inc.
---
Friday:
RLX Technology Inc.
Beyond the Oil Shock
Got a question about the markets, your investments, or a topic you’d like us to discuss in an upcoming article? We read every message and may feature your question in our daily write-ups!
Email: andrei@signal-sigma.com
Follow & DM on X: @signal_sigma
Last week was brutal for investors all over the world. The S&P 500 finished at its lowest close since mid-December with a -2% decline — the largest in nearly 5 months. Though we’re just -3.3% off the all time highs recorded on January 27, it certainly “feels” like much worse.
The headline catalyst was, of course, geopolitical. U.S. and Israeli strikes in Iran caused shockwaves in the Energy market, sending oil to above $90 / barrel by Friday and well above $110 by Monday’s Asia open. This brings into question a potential squeeze on corporate margins, inflation pressures and the outlook of monetary policy from Central Banks.
To exclusively blame the Iran conflict for the market’s risk-off move would be an oversimplification, however. In the immediate term, the market will move in tandem with oil-related headlines, but there’s more under the surface.
First of all, the labour market. Nonfarm payrolls fell by 92,000. Second, and perhaps lost in the noise of the news cycle, cracks are showing in the private credit market. Blackstone’s $82 billion BCRED fund experienced a record 7.9% redemption request—about $3.8 billion in a single quarter. To satisfy redemptions, Blackstone waived its usual 5% withdrawal cap and contributed $400 million of its own capital.
Separately, Blue Owl Capital suspended regular quarterly liquidity distributions in its flagship retail-facing private credit strategy, switching to intermittent payouts financed by asset sales. On Friday, BlackRock’s $26 billion private credit fund began restricting withdrawals as redemption pressure mounted. Together, these moves form a trio of institutional pressure that echoes the early credit-market stress seen in 2007.
The Iran conflict was certainly the spark, but the “tinderbox” was already in place (and by no means is it aflame right now). Weak employment data, a Fed fearing stagflation and selling pressure in the private credit markets were factors already in place before the first bomb dropped. We are now just seeing an excuse to de-risk positions by institutional sellers which were already uncomfortable.
In the context of very high valuations (see chart below), the potential re-rating of the equity market is significant.
Viewed through the lens of our adjusted technical chart ($770 Price Target, 22% CAGR), the SPY ETF is just now starting to descend into “reasonably priced” territory - the technical channel midpoint. At this juncture, a 200-DMA retracement at $654 seems inevitable.
From a momentum standpoint, conditions have deteriorated in the short term. The MACD signal has crossed negative and the 20-DMA is trading below the 50-DMA (which is now flat and reinforces overhead resistance). The VIX surged above 30, its highest level since last November’s sell-off.
Breadth is just about the only thing bullish right now. The Topping Pattern sell signal we’ve been watching has not yet triggered, with 323 stocks matching the pattern and 400 required to generate a sell signal.
The number of stocks trading above their 200-DMAs is still solid, at 570 out of the top 1000.
As of this moment, the bull trend is intact (in the medium and longer term), but short term momentum has waned. This will eventually create a good trading opportunity once the waters have cleared and fundamentals get back on track.
Bear in mind that this is a midterm year, which historically aligns with muted first-half returns. We’re already experiencing a seasonal Q1 performance which is aligned with some of the most disappointing returns of the past 10 years.
History says that the average intra-year drawdown in a midterm year is -18%, while the average geopolitical conflict shaves around -6% off the S&P 500 when it flares up. We also know from limited experience that Donald Trump has no issue letting the markets slide up to -20% before getting uncomfortable.
As such, we’re watching the $652 level on SPY as critical support and a break below could indeed spell larger trouble for the market.
Now for the more uncomfortable part - Friday’s payrolls shock. The economy lost 92,000 jobs versus an expected 50,000 gain.
December was revised to −17,000, making the upcoming Wednesday’s February CPI the most important inflation reading in months. The labor market is showing strain — the third negative month in five, unemployment rising to 4.4%, and long-term unemployment at its highest since late 2021. Yet wages stayed hot, up 0.4% monthly and 3.8% yearly, both above forecasts. This is the stagflation mix the Fed fears: weakening employment with persistent wage pressure.
Friday’s PCE print now becomes critical, as it is the preferred inflation gauge for the Fed. We also have the regular inflation readings on Wednesday. A hot print can change the calculus immensely.
If core CPI climbs above 0.3% month-over-month or the year-over-year rate exceeds 2.5%, the Fed stands between a rock and a hard place. It may face a weakening labor market which becomes hard to correct because inflation remains persistent. That turns “higher for longer” into “higher into weakness,” the worst backdrop for risk assets. Expectations for rate cuts shift to late 2026 or later, and the yield curve reprices toward inversion. There is no clean policy answer in this case.
Despite the geopolitical headlines, this is the “make or break” datapoint for the markets this week. Real time inflation tracker Truflation does not show a particularly worrying trend at the moment.
Our Trading Strategy (Sigma Portfolio)
The outlook is starting to dim in the short term. We have low expectations for this quarter, as a series of headwinds are now manifesting: an open ended war that has the potential to grind consumer sentiment into the ground if gas prices spike, high valuations + low equity risk premium (making equities vulnerable to any shock) and private credit cracks that need to remain contained.
In other words, a cocktail of risks is on the horizon. In itself, this is not a guarantee of an imminent selloff, but a deteriorating growth-inflation mix is a major worry. As usual, we’ll let the market be our guide. If support does not hold for equities, we’d definitely be looking to reduce risk into weakness, as potential losses begin to pile up. The potential for a larger bear market is largely absent, however. Eventually, the volatility will settle down and we’ll get the opportunity for a better entry point. The massive rotation out of Tech will revert and lead to a rebound and a fresh growth phase.
We’ll follow tomorrow’s Enterprise rebalancing process closely for a general guide as far as asset allocation goes. We’ll also opt for higher diversification and slightly raise cash by selling off underperforming positions. This should grant us the flexibility to weather any coming storm and defend the profits that we have already generated.
Disclosures / Disclaimers: This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this blog post. I currently do not own or plan to own any position, long or short, in the securities mentioned.
I am not a financial advisor licensed in the United States. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject to change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this blog post.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this blog post myself, and it expresses my own opinions. I do not have a business relationship with any company whose stock is mentioned in this blog post. The information in this blog post is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog post is to share industry expertise and research and receive feedback (confirmation / refutation) regarding my investment theses.