Research Notes

Strategy

• U.S. Dollar hit its lowest low since 2022, but sentiment is working in favor of a bounce. That could be dollar safety, which odds would favor will come back into vogue at some point soon, particularly with real yields above 2%.
  
  
• As beta has dominated returns, we've seen utilities surprisingly hold their own. The relative performance has weakened, but typical of a consolidation, not a top. Don't overlook this group.
  
  
• After making a "Be long Beta" call in early April, the Beta performance has moved from the 0th percentile at the end of April to the 97th percentile today. Jeff deGraaf discusses what he sees ahead for Beta, and how RenMac is positioning clients.
  
  
• Yields remain mixed as CPI inflation data is stalled at a low level.
  
  
  • Short-end yields are in a downtrend, anticipating eventual Fed cut, while 30-year bonds press against breakout-levels. This has insurance brokers oversold, representing a buyer's opportunity in a lower volatility space.
    
    
• Small caps have seen some life recently, likely a reflection of the missed beta trade and a catch-up opportunity.
  
  
• There is a misconception that when sentiment turns from being overly bearish to neutral, that must be bad for stocks. Don't get caught in that trap, as it's untrue. With sentiment, only the outliers matter, 80% of the data is useless.

Economics

• Taking the details of CPI and PPI, we estimate that the core PCE chain price index will rise just 0.1% over the month, the third consecutive month of below-target inflation.
  
  
  • While this news is welcome, there is likely some tariff pressure on the horizon, though this needs to be weighed against the risk that shelter inflation - where most of the shortfall is relative to target - continues to cooldown.
    
    
• Common misconception: Due to supply-side of labor market cooling, slowing employment growth is no big deal.
   
  • Nationwide border apprehensions peaked well over a year ago and began falling under Biden admin.
  • Prime-age labor force participation tends to rise during an expansion and fall during a slump. Over the last year, prime-age LFPR has declined 0.2%.
  • It's been getting easier to find workers. Complaints about labor quality or firms reporting few applicants for postings has been waning.
  • Ratio of hires to job openings has been rising. This would not be happening if labor market was tightening because of supply-side considerations.
  • If this supply-side story was dominant, we would expect to see unemployment fall and wage growth rise. Instead, unemployment has been rising while wage growth has been slowing.
    
    
• Consumers will crack when labor market does. So long as people are employed, they will keep spending. However, we have a tough time seeing why consumption speeds up with labor markets slowing. Real income growth remains under pressure and there is a limit to how much consumers can draw down their savings.
  
  
• Business investment is clearly impacted by tariffs. Across a range of regional PMIs, six-month capital spending plans remain well below normal, even with their improvement since April.
  
  
• Housing conditions are getting worse: Inventories are rising week after week, climbing to levels not seen since before the pandemic.

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.