/ March 28
-
Friday:
Core PCE Price Index MoM (0.3% exp.)
Personal Income MoM (0.4% exp.)
Personal Spending MoM (0.5% exp.) -
Friday:
N/A
Daily Briefing
*The stock market had a mixed showing yesterday; the S&P 500 (-0.3%), the Nasdaq Composite (-0.5%), and the Dow Jones Industrial Average (-0.4%) traded above and below prior closing levels during the entirety of the session, with little conviction to drive more significant price action;
*Mixed messages on the tariff front and in economic data contributed to the choppy action; President Trump's Wednesday evening announcement that a 25% tariff will be imposed on all car and light truck imports into the United States sent carmakers sharply lower, yet he also added that reciprocal tariffs will be "lenient."
*SPY is still trading in a tenuous disposition, marred by negative Gamma Exposure taken on by market makers; technically, the support level at $565 (S1) is still holding and it’s critical that this be the case at today’s close, after the release of Core PCE data; if this level fails, we could be in for a prolonged decline to the lower part of the trading channel, which has downside to about $490 (-13%); even in such a scenario, we would still be trading in “normal” circumstances, as a theoretical -20% decline is within the bounds of a more broader bull market;
*The MACD signal has tapered off, as the current advance has stalled; to a certain extent this is to be extended, as a sideways consolidation may be in the works;
*As mentioned earlier, most sector ETFs and SPY are trading in a negative gamma regime, meaning that volatility is prone to creeping up; on that note, Financials (XLF) and Energy (XLE) have consistently been trading in positive GEX territory and have been performing better as a result;
*Yesterday’s flows, although occurring on less than normal options volume, point to a bullish short and medium term direction for SPY and several other influential ETFs (like XLK and XLY); given that technically we’re seeing a level test and confirmation, we would take this as a positive development;
*Weekly jobless claims continue to run below recession-like levels and an Advance International Trade in Goods Report for February still showed a substantive goods deficit (-$147.9 billion), yet it narrowed from January (-$155.6 billion);
*Initial jobless claims -- a leading indicator -- decreased to 224K and continues to idle at levels consistent with an otherwise solid labor market; along with the Atlanta Fed GDPNow update this week, this indicator currently points to recession fears being overblown for the time being;
*Mixed action in the mega cap space also contributed to the up and down action at the index level; Tesla (TSLA, +0.4%), which is perceived as a relative beneficiary of the auto tariff action on imported vehicles, was a standout on the winning side while NVIDIA (NVDA, -2.1%) underperformed along with other chipmakers;
New Home Sales MoM %
*Another economic indicator that we are watching is the St. Louis Feds’ Nowcast; similar to the Atlanta Fed GDPNow model, this computes a real-time estimate of U.S. GDP growth, specifically for the current quarter, produced by the Federal Reserve Bank of St. Louis; it uses a statistical model called a "nowcasting" framework, which incorporates incoming economic data as it’s released—such as employment figures, industrial production, retail sales, and other high-frequency indicators; the model weights these data points based on their historical correlation with GDP growth and updates the forecast dynamically throughout the quarter;
*As shown in the chart below, the indicator points to a continued expansion in Q1 2025;
*The market is currently split between 3 distinct “performance clusters” let’s call them; we have the high growth areas of the market like Nasdaq (QQQ) and Growth Stocks (IVW), the “rest of the market”, like Equally Weighted S&P500 (RSP) and Mid-Caps (MDY), and finally the long under-performing foreign stocks — Foreign Developed Markets (EFA) and Emerging Markets (EEM);
*According to this 2-year timeline, the rotation / mean reversion has a way to go, if one is to believe performance will eventually normalize across all asset types;
*Treasuries settled in mixed fashion; the 10-yr yield rose three basis points to 4.37% and the 2-yr yield fell one basis point to 4.00%; on a related note, the U.S. Treasury completed this week's note offering slate with a weak sale of 7-yr notes;
*TLT settled -0.29% lower on the day and marginally broke through its M-Trend support level at $89; we see the correction / consolidation in treasuries continuing in the medium term and would wait for technical confirmation before adding exposure to this area;