The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Strange day.
Dip-buyers needed a good night's sleep apparently. S&P futures rallied 15 points around 3 AM and implied a small opening pop. The index opened flat however and stumbled shortly thereafter. The bulls liked that setup and pushed the index higher until it was +40 by 11 AM. The market chopped around and fell back some until it really fell down and went negative 20 points. This was due to the bizzarre and contentious meeting in the White House between President Trump, VP Vance, and President Zelenskiy. Markets didn’t know what the heck they were watching and selling resulted. Once the dust settled, buyers went back to work and new intraday highs printed in the final hour of trading. The index really squeezed higher in the final 30 minutes. Yields fell across the curve and Fed Funds futures price in 69 bips of cuts this year, a significant change.
Stock investors finally bought the dip and they did it twice today. Other than playing the chart, it’s not clear why they were so enthusiastic today. From a fundamental standpoint, today revealed another negative for the economic outlook. The Atlanta Fed released their latest GDP projection. The project -1.5% for the 1st quarter of the year. The prior estimate, from February 19, was +2.3%. That’s a big negative revision to growth, from one of the most historically accurate and respected predictors of GDP. And just to hammer the point home, that revision predicts a recession. So either we’re in it already or it’s about to get nasty.
The bond and rates market responded appropriately. Yields came down across the curve and the Fed Funds futures market is starting to price in Fed easings that would obviously come should the economy go negative.
And yet stock investors bought.
I know the dip-buyers love dips but there’s something strange going on out there in equityland. The sentiment is bulletproof and/or in denial.
We all know that an actual recession will kill the bull and summon the bear. The S&P 500 doesn’t respect that possibility today. I wonder how it’ll play out. I have no interest in joining the dip-buyers to find out.
See you Monday, have a great weekend.
-Mike
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