Uddrag fra Zerohedge:
If I try to see through all of that smoke to the longer-term fundamental dynamics, several anchor points are still intact:
i. US economic growth has slowed, but should remain durable as we move past Q1.
ii. in turn, we call for S&P earnings growth of 11% this year.
iii. we’re not giving up the ship on the US consumer just yet (detailed in point #1 below).
iv. if warranted, the Fed can avail themselves of plenty of rate cuts (GIR calls for two this year, which is a touch less than the strip prices).
v. there is a distinction between the ordering of policy and the end game of policy (I have misread the sequencing, but still believe pro-growth outcomes are the ambition).
What follows from here: nine fundamental points and five charts that attempt to sort through the big issues of the day.
1. US growth.
You don’t need me to tell you this, but the US has hit a softer patch, with Q1 GDP tracking 1.4%. while not without some quirks in that calculation, data on US consumption has clearly softened (retail sales, services, consumer confidence). in addition — and, to be clear, this is an anecdotal point — several folks that I speak with report a deterioration in business confidence; given all that’s going on right now, perhaps this shouldn’t be a big surprise. bigger picture, however, things aren’t falling off a cliff. specifically, I don’t want to get overly negative on the broad state of the US consumer, as we’re still calling for +2.5% real income growth in 2025 .
2. A follow on point.
I suspect the market has already discounted a good bit of what we’re talking about here. yes, the past few weeks have brought some growth worries to the fore. in turn, the markets have quickly (and quite seriously) repriced, be it equities or rates or currencies. take a step back: prior to this month, there had been a very big cyclical upgrade to the market’s growth view — CYC/DEF went nuts in November, and again in January — now that’s being challenged by the data and the headlines. my guess is we’re now at a point of rough equilibrium where the asymmetry in risky assets isn’t obvious.
3. the momentum reversal.
Following a searing move higher to start the year, the past two weeks brought a searing move lower in the high momentum names (ticker GSMEFMOM tells the whole story). while there is a clear case to be made that this correlates with the ratcheting down of growth expectations — of course high velocity stocks prefer an environment of animal spirits — I suspect this is also a story of a fierce short-cycle trend that simply exhausted itself once the money flow stopped (this would foot with the typical pattern of retail demand waning as February wears on).
4. US politics.
I came into the year with an expectation the constellation of Trump 2.0 policy would contain a mix of stick and carrot, but would ultimately tilt net positive. right now, the market is clearly struggling with the initial sequence of how those policies are being prosecuted. which is to say, the ordering has featured the tougher policies up front, as most of the dialogue has been around tariff uncertainty and the impingement of DOGE on jobs. while that’s understandably not easy for stock operators to digest, again I think there’s a distinction between the current sequence and the terminal outcome.
5. US tech.
There have been three key themes within the space this year:
(1) immense dispersion — think META vs TSLA — which marks a serious departure from uniform strength in 2023 and 2024;
(2) we all knew it was coming, but the immense earnings premium that you had earned in US mega cap tech vs everything else is narrowing;
(3) Deep Seek triggered a shift in the flow capital away from the US plays.
In a few ways, NVDA earnings are an illustration of what’s going on here: they didn’t pull a hamstring as the cyclical impulse to spend on compute is still clearly intact, but price action told a certain story (i.e. -$320bn of market cap in one day). bigger picture, the stock has been range bound for the past eight months — coming off a 24,000% cumulative return in the prior ten years, if nothing else that’s anti-climactic.
6. US VS ROW.
The theme of US exceptionalism had been as powerful as any. whether you start the clock in 2009 or 2020, the US was the best game in town (at various turns, it felt like the only game in town). flash forward to today, and the narrative has changed, to the benefit of Europe and China. these are similar stories in a way — both were seriously under-owned coming into the year — but I’d argue they’re fundamentally independent. China caught a bid on the back of Deep Seek, which was amplified by Mr. Xi’s embrace of his national champions. Europe is not a tech story — that’s for sure — I think it’s more a concession to reality that serious policy changes need to be made on both growth and security.
7. A follow on point (Europe).
SXXP has rallied every single week this year. while I certainly didn’t see that coming, perhaps the contrarians did — at the end of last year, one could hardly come up with a bull case. in fact, at a client conference as recent as January, 58% of the crowd expected the US to be the best performing geography this year — while just 8% favored Europe. I can tell myself the same structural stories here — too much debt, too little growth, too little innovation — but positioning plus a turn in policy expectations has stabilized the market. of course, now the hard part is in the doing.
8. A follow on point (China).
As we head into the “two sessions” next week, certain parts of the recent move have been stunning (few better than BABA). to be fair, it’s not all good news. for example, the consumer oriented parts of the market have lagged the move in tech, and are still a ways off the Q4 highs (see chart #13 below). what I’m getting at here: while the local AI dynamics are alluring for investors, the government will still need to deliver on the demand side of the equation — that was the missing ingredient following the September sugar high. the other big question is whether structural capital will commit after neglecting the region post-2020/2021. again, after the reset in price, now it’s in the doing.
9. Japan.
After spending several months mired in a 38-40k range trade, NKY was belted this week and sits at 5-month lows. in the short-term, I worry a bit about length that still resides within the CTA community. bigger picture, if you had told me five years ago that Japan would be printing 2.8% GDP growth, I would not have believed it. if you told me Japanese would be seriously underperforming in that context, again I would not have believed it. taken together with the prior paragraphs, it seems quite clear that capital is flowing elsewhere right now. for a more positive structural take, enter Mr. Buffett: “a small but important exception to our US-based focus is our growing investment in Japan”.
To conclude, Pasquariello offers five simple charts to contextualize the local trading environment:
10. this is our “high retail sentiment” basket over the past six months:
11. this is our US cyclicals-vs-defensives basket (ex-commodities) over the past six months:
12. this is the China consumer basket I referenced earlier … it’s a bullish chart, but note the compare to the Q4 ripper:
13. this week saw yields on US 2-year notes broke below a multi-month congestion range … given that the Fed sits at 4-3/8%, the asymmetry here is probably still lower:
14. finally, this is S&P since the “deficit” lows of late 2023. I reckon this trading channel is the key trend to monitor as next week rolls along:
All taken together, in the eight sessions since the highs were made, the US equity market absorbed a series of body blows (and, thus, risk transfer).
