/ March 23 / Weekly Preview
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Monday:
N/A
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Tuesday:
S&P Global PMIs
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Wednesday:
N/A
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Thursday:
Initial Jobless Claims (210K exp.)
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Friday:
Michigan Consumer Sentiment (53.8 exp.)
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Monday:
N/A
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Tuesday:
GameStop Corporation
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Wednesday:
Cintas Corporation
Paychex, Inc.
Chewy, Inc.
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Thursday:
N/A
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Friday:
Carnival Corporation
A Confluence of Warning Signs
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Actively trading the markets has been tough recently. Last week investors breathed a sigh of relief on Monday, as news broke that a U.S.-led coalition would escort tankers through the Strait of Hormuz. Oil pulled back sharply, S&P 500 futures surged +1.2% and Monday’s settlement was the best single session in over a month for equities.
All of that was for nought by the end of the week, as optimism was quickly snuffed out. It was inflation data which changed the tone. February CPI came in at 2.4% (in theory a benign number). But data did not comprise the oil shock which will be fully reflected in the March reading. February PPI was the real concern, jumping +0.7% month-on-month in what was the hottest reading since July 2025, pushing the year-on-year rate to a much more problematic 3.4%. Goods prices jumped +1.1% (highest single month increase since August 2023) and core PPI also rose for the 10’th consecutive month. PPI will eventually transmit to CPI, and the price increases will arrive precisely in time to coincide with the energy cost spike.
The FOMC meeting took center stage, with policymakers holding rates steady at 3.5% - 3.75%, as expected. It was the messaging that jarred investors, however. The updated “dot plot” implied just one cut for 2026, with another one on the table for 2027. Seven participants are now signaling no cuts this year. Powell himself noted there was progress made on inflation, just “not as much as we had hoped.” Stocks reacted by falling to session lows.
In the background, private credit continued to deteriorate. Funds from Blackstone, Blue Owl, and BlackRock are dealing with redemption requests in excess of 5%, the threshold that allows managers to restrict withdrawals. Opacity and leverage are coming under scrutiny. Credit spreads are rising rapidly (more on this later).
In the latest twist of events, this morning, as this article was being penned, S&P 500 futures went from -1% to +2.5% in the span of a couple of minutes as President Trump announced a potential cease-fire with Iran via a Truth Social post. Brent Oil futures for May collapsed to below $100, in what can only be described as nerve-wracking volatility.
What happens now?
There are 2 major themes that we need to pay attention to:
Oil volatility and oil prices; this is the major fulcrum, as risk-on / risk-off flows are primarily being impacted by inflation expectations. If brent manages to stabilize below $95, the Fed has more leeway on inflation and rate-cuts could be discussed again. Prices above $110 leave the central bank frozen.
Technically speaking, the market needs to reclaim key support that was lost; breadth and participation need to improve fast, while credit spreads need to narrow
Here’s the technical breakdown:
By Friday’s close, SPY had completed a -6.75% drawdown, breaking below the key technical level at $656 (200-DMA and S1 retracement). This is generally a bearish development, as trading below the 200-DMA for the first time has negative connotations for the near term. While the 6-Month and 1-Year returns are historically positive (76% and 84% higher respectively), the path getting there tends to be rocky.
1-Month returns are positive just 35% of the time, with results ranging between +9% and -15%. From current levels, that could take us as low as $550 in a full washout scenario. This is not something we’re forecasting at the moment, but it is in the realm of possibility nonetheless. It’s something we may need to be psychologically prepared for.
The fundamental overlay is not encouraging either. A hawkish sounding Fed upwardly revised inflation forecasts and lowered growth projections, which is another way of signaling stagflation conditions. Some analysts (like Macquarie) expect the next move to be a hike instead of a cut.
Selling has broadened beyond mega-cap tech, and Friday saw 502 stocks trade in a “topping pattern”, well above the signal threshold of 400. This signal has been one of the most reliable we’ve built to date, as every instance of continued pressure eventually translated into a bear market over the next month (35% positive, +11% max, -15% min). This stat aligns well with the 200-DMA break study we flagged above.
Bottom line is that the market has definitely changed. History says we’re more likely higher in 12 months than lower, but the next durable bottom requires either a sustained decline in oil or a credible de-escalation in the Middle East, neither of which is imminent. Today’s positive development means nothing without follow-through.
The calendar for this week is light, with few notable events. Besides oil, catalysts will most likely revolve around quarter-end institutional flows that historically amplify moves in both directions.
With negative GEX for SPY as well as a vast majority of stocks, more volatility is on the table. A large number of Fed speakers will sway messaging back and forth.
Q4 Productivity final revision will hold some clues on inflation (the unit labor cost component) and Friday’s release of UMich Consumer Sentiment will shed light on inflation expectations. The one-year and five-year inflation expectations are what the Fed watches most closely; a spike above 3% would validate the hawkish hold and kill remaining hopes for near-term easing.
Q1 ends on March 31 (next Tuesday). We expect pension funds and institutional allocators to begin large scale portfolio rebalancing this week. With stocks recording a weak quarter so far, they should be the net beneficiary from these fund flows. In a thin-catalyst week, flow-driven moves can be outsized.
Finally, we would like to emphasize credit spreads as a catalyst to watch. The bond market is usually more prescient than the stock market, despite investors focusing on stocks most of the time. The bond market has been already issuing a warning, but credit spreads are now starting to blow out.
At present, the CDX Index — a benchmark for credit default swap spreads — has risen to a nine-month high while the S&P 500 trades within 5% of its record high. In the past 20 years, that exact pairing has been followed by a bear market every single time.
This is a very notable track record, again one that aligns with our quantitative analysis. A credit spread is the yield difference between two bonds with similar maturities but differing credit quality. Typically, this contrasts risk-free Treasury bonds with corporate bonds that carry default risk. Monitoring these spreads lets investors assess market risk appetite and pinpoint stress signals that often precede equity market corrections.
Investors who buy high-yield bonds — those with a real risk of default — should get a premium over U.S. Treasury yields. If that premium narrows, it means investors are willing to chase yield without enough compensation for the extra risk. If the premium widens, lenders are growing cautious, credit is tightening, and historically that tightening has often led to tougher stock-market conditions. Because of the nature of credit, it’s much harder to “talk up” than stocks, as retail investors are absent from the market.
Sentiment Trader has put up a stunning chart that we share below. Top panel: S&P 500 performance from 2007 onward. Middle: CDX credit default swap index. Bottom: CDX spreads expressed as their position within a 189-bar range — effectively a percentile indicating how elevated they are versus recent history.
Red markers denote occasions when CDX spreads reached 9-month highs while the S&P 500 was within 5% of its peak. Since 2007, this signal preceded the Grand Financial Crisis (worst outcome, -56% drawdown) as well as the 2015 bout of volatility (most benign, -15% drawdown).
Our Trading Strategy (Sigma Portfolio)
Risk sentiment is clearly having a moment of reckoning. As investors become more risk-averse, they shift capital from corporate bonds to safer assets, such as Treasuries, straining credit spreads. When fixed income is starting to price in higher risk, the next thing that breaks is usually the stock market. Bulls will argue the overall level of spreads is historically low, but what matters most is the speed at which interest rates move and the travel direction. These are key ingredients of the Enterprise strategy as well.
As such, conditions are starting to indicate a potential large drawdown is ahead of us. The window to act on this is before the market confirms what all of these warning signals are in fact saying. This does not mean selling everything and going to cash, but rather adjusting a portfolio’s risk profile to match current conditions.
There is no guarantee this ends in the same way as 2008, 2015, or 2022, but all the preliminary signs are there. We will continue to watch the Enterprise strategy for a guide to asset allocation and rebalance risks lower, especially on rallies.
This time could be different only if a permanent solution to the middle-east conflict is found. In our opinion, the technical damage to the market, though consistent, is nowhere near high enough to force Trump’s hand to make a deal. Rallies like we are seeing today will punctuate a decline as they always do (rarely does a market just tank in a single swoop lower). The next month is highly susceptible to losses, with the only silver lining being that conditions are indeed oversold enough to elicit sharp bounces, especially on rumours.
We’ll keep you posted with Trade Alerts for the Sigma Portfolio, as we rebalance holdings.
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.
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