Research Notes

Strategy

• A key technical signal just flashed. The S&P 500's 50-day moving average crossed above its 200-day - triggering a golden cross.
   
  • Since 1927, buying on this signal has outperformed buy-and-hold on a CAGR basis and delivered nearly 50% more Sharpe. 
    
    
• Last week, we flagged July as a seasonally strong month. That view just got reinforcement from a rare setup: a -20% drawdown in the first half. It's only happened 15 times since 1927, but when it does, July and August tend to rally. 
  
  
• Sentiment is no longer at panic levels, but it's not euphoric either. Given the strength of the Q2 rally, we'd expect a bit more bullish conviction. That gap could be fuel - not friction - for the next leg.
  
  
• Global equities just made a new high, and beneath the surface, regional momentum is gaining traction. 
   
  • South Korea is a standout. After a strong leg higher, we'd welcome some consolidation - but the broader setup still points up.
    
    
• Financials continue to lead. Seasonality has their back, and the technicals remain constructive. Use pullbacks and sideways action to add exposure - this trend still has room to run.

Economics

• While June's headline jobs report surprised to the upside after ADP's negative print, looking deeper, we find the drop in unemployment from 4.3% to 4.1% stemmed largely from a 130k-person contraction in the labor force.
  
  
  • Similarly, the household survey showed participation rate dropped to 62.3%, from 62.4% last month and 62.6% last year - a 130k drop MoM and down 745k from 2 months ago.
  • Additionally, on the wage front, hourly earnings rose just 0.2% bringing yearly gain to 3.1%, well below the 3.8% from a year ago. This pairs with a shortened workweek to 34.2 hours from 34.3. As a result, average weekly earnings dropped.
    
    
• Just over 20% of outstanding mortgages were originated below 3%, a slight dip from 20.8% at the end of 2024. Loans in the 3-4% range have slipped to 32.7%, down steadily from over 35% earlier this year. The 4-5% cohort continues to decline, while 5-6% remains relatively flat.
   
  • But the shift is happening on the margin: mortgages originated at 6% or higher now represent 18.8% of the market and continue to rise. It's a slow but persistent tightening of monetary conditions - and it's showing up in borrower behavior.
    
    
• The May JOLTS report surprised to the upside, with private-sector job openings jumping by 374,000 - the second monthly increase in a row.
   
  • But beneath the surface, the story narrows: 314,000 of those new openings came from accommodation and food services, marking the largest one-month increase (in percentage terms) since May 2020. It's a sharp move - and one that diverges from most other measures of labor demand.
  • The total private sector job openings rate stood at 4.9%, the highest level since November. Taken at face value, this mitigates the risk of higher unemployment.
  • That said, the more recent data points - including elevated continuing claims - imply the hiring rate may already be rolling over. The JOLTS data may reflect a temporary spike rather than a sustainable trend.

Research Notes

Economics

• US labor market continues its downtrend. Weekly job postings continue to trend down, layoffs picking up, quits are cooling.
  
  
• March data showed broad economic weakness, with declines in services, confidence, housing, and commercial real estate.
  
  
• Rising inflation, weakening job outlooks, and cautious business spending point to growing economic strain.
  
  
• Home prices are cooling, which may curb spending as household wealth dips and the savings rate edges higher.
  
  
• The rebound in capital goods shipments looks fragile, with growth mostly tied to tech and broader investment plans weakening.
  
  
• New tariffs could cut 0.5% from GDP, strain trade ties, and raise car prices before production shifts take effect.
  
  
• Auto repossessions are at their highest since 2009, and tariffs may push buyers to the used market, keeping prices elevated.
  
  
• Despite trade tensions, signs of de-escalation and strong profits offer some cushion, with markets already pricing in much of the downside.
  
  
• Q4 growth was lifted by consumer and government spending, but with investment falling and key supports fading, a broader slowdown seems likely.

Strategy

• Market technicals show potential for a rebound. We think Mag7 approaches 50dma and potentially crosses through, getting to overbought, high beta stocks slowly recovering, and excessive outflows in IWM and SPY could fuel a tactical bounce.
   
  • Remember, this was a beta-driven correction, not a momentum-driven one.
    
    
• Bullish signals may re-emerge if a high percentage of stocks move about their 20dma and hit 20-day highs, suggesting a reassertion of the bull trend.
  
  
• Despite heightened policy uncertainty and a dark cross in tech, strong credit markets and sentiment tied to returns suggest the current pessimism may be overdone.
  
  
• Semi's continue to weaken, with even "good" ones coming under pressure.
  
  
• Staples pulled back at resistance levels, maintaining relative downtrend. Sharp unwind in beta and extreme underperformance suggests continued downward pressure.
  
  
• Transports reiterate bearish trend but flagging oversold and in "seller's frenzy". Expect short-term tactical bounce but fade the move.

Policy

• Debt limit deadline ("X-Date") likely between July and October, with resolution hinging on reconciliation or bipartisan deal amid uncertain cash flows.
   
  • Delays risk market volatility and a Moody's downgrade, raising U.S. borrowing costs.
    
    
• Trump will announce reciprocal tariffs on April 2, targeting about 15 key partners; recent moves on oil, autos, and threats to the EU and Canada may be strategic leverage.
  
  
• Section 232 is being used more broadly to justify tariffs on national security grounds, covering autos, copper, timber, and pharma, with an emphasis on U.S. production.
  
  
• Tariff timing and scope remain unclear, with Trump using them as a flexible tool, adding to market uncertainty.