Extreme Markets

After nearly 30-years in the investment business I’ve seen a lot. Extreme techno driven over confidence prior to the Dot-Com bust. The depths of despair that followed. Only to watch the cycle repeat in 2007 when everyone thought real estate prices were going to the moon. They made it about halfway there before crashing back to earth. Extreme markets produce extreme data points. As the total spread between highest and lowest forecast for the S&P, shown in the chart below shows. Since Bloomberg started collecting the data in 2000, the gap has never been so extreme this late in the year.

For the week the S&P 500 lost 80 points or 1.49%; the NASDAQ slipped 438 points or 2.62%; while the DOW fell 1,071 points or 2.66%. Ahead of the Good Friday shortened Easter Weekend.
As per usual, extreme markets or not, it comes down to money. With the S&P 500 earnings season getting underway. The data so far, while positive, is decidedly on the week side with earnings growth running 7.2%. Revenue growth is also anemic, clocking 4.3% so far. Where to from here depends a lot on Tariff Man and how quickly and effectively his team can negotiate deals. Will they or won’t they cut interest rates, when and by how much.

Do You Feel Loved?

Or more importantly do foreigners and their markets still love US Treasury Bonds? One of the more prominent speculations following Liberation Day was that a tariff driven trade war would inspire the Chinese and others to sell Treasury Bonds driving prices down and yields up. A potentially lethal combination if your name is Uncle Sam with 36 trillion in debt and 2 odd trillion a year deficits. There was some data to suggest that the “Honeymoon” was over. Unlike most economic data that has a 1-month lag. The TIC or Treasury International Capital report that measures foreign net purchases of Treasury bonds and other US securities, comes with a 2-month lag. So, we won’t have a definitive answer until June. At least for now the TIC report remains strongly positive as foreigners purchased a combined 290 billion in February, the 2nd highest monthly total since 2011. Pushing foreign Treasury holdings to a record 8.82 trillion Dollars. Thanks to WolfStreet for the chart.

With all of the lines pointing north. Treasury buying was broad based and popular across the major players as shown by the graph. So far, the combination of comparative higher yields and the reputation of Treasuries being a safe haven during periods of uncertainty. Continues to drive their popularity. Hopefully these trends will continue in 2025.

The Trend Is Your Friend

The extremely biased MSM continues to push the narrative that the Trump administration is going to wreck the economy, markets, real estate and everything else you can think of. Despite the endless negative headlines. So far only the markets and some sentiment indexes have really moved in the wrong direction. The one glaring exception that comes to mind is the Atlanta Fed’s GDPNow model that continues to show economic growth as measured by 1st quarter GDP deep into the red at -2.4%. A lot of data makes up the quarterly GDP report. Trade, employment, real estate and retail sales being the largest components. Retail sales in particular are generally figured to make up about 70% of total economic activity. The latest data from the Census Bureau shows that March retail sales jumped 1.4% for the month. Pushing the year ago gain to a very respectable 4.6%. January and February sales were both revised higher. Illustrated by the chart below. Compliments of Calculated Risk.

To be fair, there is definitely a certain amount of tariff front running occurring here. As people and businesses rush to make purchases ahead of the impending tariff implementations. I won’t be at all surprised to see retail sales falter as the 2nd quarter gets underway. Having said that, spending is robust, inflation is falling, employment remains strong. This despite the MSM Chicken Littles running around exclaiming that the “sky is falling” at every opportunity. Seems to me that the recession is going to have to get back in line and wait.

Last Week’s Post: But Wait, There’s More!

Follow me on Social Media

X: Caleb Lawrence (@CalebRIAInc) / X

Truth Social: Market Bull

Substack: @themarketbull

LinkedIn: Caleb Lawrence | LinkedIn