Assets have risk
March 31, 2025
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–Stocks under follow-thru pressure following a poor session Friday. SPX was down 2% and Nasdaq Comp -2.7%. SPX ended 5581. I would think a reasonable target would be somewhere around 4800 to 5000. High at the end of 2021/start of 2022 was 4819. The halfway back level from the 2022 low of 3491 to this year’s high of 6147 is 4819. A 20% drop from this year’s ath is 4918. Obviously that sort of move would take some time, but in the five months from October 2023 to end of March 2024, SPX surged 1144 points. The Feb high of 6147 minus 1144 is 5003.
–Friday’s trade in rate futures felt somewhat more urgent. SFRH6 thru SFRH9 settled up 11.5 to 12.5. Five yr was the leader on the treasury curve, sinking 11.9 bps to 3.979%, while tens fell 11.4 to 4.253%. The most inverted one-yr SOFR calendar is front SFRM5/M6 which settled at a new recent low -62.5 (9593.5/9656.0). At a price of 9593.5 in M5 the yield is 4.065%, which is right around a 25 bp ease; EFFR is currently 4.33% and would move to 4.08% on a cut.
–As mentioned in yesterday’s note, PCE data mixed: Personal Income was up a solid 0.8% but Spending only 0.1%. Prices were slightly firmer than expected with yoy 2.5% and Core 2.8%. More worrisome were final University of Michigan survey data. The one-yr inflation measure edged up to 5%. The Economic Expectations number was dismal at 52.6. There are just a few lower readings: 2008 at 49.2 and 2009 at 50.5 (GFC). 2011 at 47.6. 2022 is the lowest at 47.3.
–End of month and quarter today. Chgo PMI expected 45.0 from 45.5. Tariff day tomorrow.
–Just another couple of broad strokes regarding international capital flows. Market Huddle featured guest Julian Brigden who noted that the US equity weight of new investment flows is 70% of every dollar, a huge pct relative to US GDP/global GDP. I recreated a chart he mentioned, SPX / FEZ ratio, where FEZ is the Eurostoxx etf. As can be seen, it’s testing a long-term trendline. On a related note, Atlanta Fed GDP Now has added a ‘gold-adjusted’ measure. Why? Because US imports of gold were so large that they mechanically depressed GDP. Obviously, recalibrations of capital flows that are already unbalanced can have a huge effect on markets, with little change in economic ‘fundamentals’. Those catch up later….
