Judging the Stock Market’s V-Shaped Recovery

Jeffrey Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here with my friend and colleague, Adam Turnquist. Adam, I don't care about you, I care about mom. How was mom's weekend?

Adam Turnquist (00:12):

It was good. We were busy. We went to church with the kids. We made it through the entire service without having to leave. That was a surprise to both of us. Then we did a little bit of brunch, so it was a good mother's day. Nice warm weather here in the Midwest as well.

Jeffrey Buchbinder (00:27):

Very nice. And two little ones lasted the whole service. Wow, that's impressive. We had the in-laws over, which was very nice. I know that might be an oxymoron for some, but we had a nice time with the in-laws and celebrated with some treats while they were here. Certainly beautiful weather here in Boston over the weekend too. So hope all the moms out there listening had a wonderful weekend and hope the dad's listening helped the mom have a wonderful weekend. So let's get into it. Here is, after our disclosures, our agenda. We're going to make a real quick market recap section because frankly, with what's going on today, it's Monday afternoon, May 12th, 2025. Market is surging. I'm not sure that the recap really matters all that much. Next, section two, we're calling bulls on trial.

Jeffrey Buchbinder (01:25):

So that is the Weekly Market Commentary, which you can find on lpl.com that Adam, you did an excellent job with. So we'll go through that next the regular chart check segment that we do with Adam. we title this boxes left to check because, you know, back in early April we were talking about what we need to see to call the durable low in. Well, I think we've seen just about every box get checked. So not all of them, but just about all of them. So we'll walk through that. And then lastly, preview the week ahead. And just like the recap, that's going to be really quick because the data doesn't really matter all that much. What matters is tariffs and trade and the tax bill. So moving on. Alright, here we go. Market recap, short breather. I called it a short breather because we had that nine-day win streak that ended early last week, and then the market just sort of drifted a bit lower.

Jeffrey Buchbinder (02:28):

So S&P down about 0.4% on the week actually on the sector side. Before I go to you, Adam, I think probably the most interesting thing here is the healthcare sector. So President Trump announce his most favored nations healthcare, pharmaceutical pricing, executive order over the weekend. And you know, anytime the pharma sector is fighting with lower drug prices, the stocks tend not to work. So we certainly saw that last week down over 4% in a very volatile session today, down in the morning. But rallied back after Trump explained that, you know, maybe we can get prices up in Europe while we're taking them down in the U.S. And that might not be as negative for pharma sales. So I thought that was really interesting here, kind of buried underneath all of the tariff headlines. So thoughts from you, Adam, on last week?

Adam Turnquist (03:28):

Yeah, I think it was just kind of a lackadaisical week. When you look at price action, especially given the headlines, earnings, the Fed, all the, the things we had to get through to finish the week down, half a percent or down 0.4% was a little surprising. But to your point, coming into the week or entering the week with that winning streak, things were a little bit overbought. I think expectations were, were maybe a little bit high on a short term basis. Look at market breadth, though underneath the surface, very positive. We had four to one in terms of advances versus declines last week. So even though we were down, there were still a lot of stocks moving higher. So a good sign overall there. And then on the healthcare sector, that's been interesting as well. Biotech was a big part of that.

Adam Turnquist (04:16):

There's a new FDA director that was perceived to be as kind of a move away from pro pharma. So that weighed on on biotech and of course that weighed on healthcare. Technicals there do not look too great on a short term basis. Starting to break down a little bit. So I guess a little bit cautionary there on the technical side. And then of course on the international markets, I know we'll get into that, but we had our first trade deal announced with the U.K. The market, not really that receptive to it. I was a little surprised just given that it was the first trade deal. We were waiting for one and we still ended the week. You know, as we highlighted earlier down on the week, of course, things changed over the weekend as Scott Bessent and President Trump worked out a trade deal with China. That's obviously moving markets today. A little more reception to that, of course, a little bit bigger impact when you think about what we import from China and what they import from the U.S. as well, or export to the U.S. So a positive on both fronts there.

Jeffrey Buchbinder (05:18):

Sure, yeah. That's why we really want to look forward here. And clearly that China tariff news over the weekend was much better than virtually anybody anticipated. In fact, I saw the odds of the tariff rates coming in below 50% were about one in four in the betting markets. And so you're talking about a huge upside surprise to get those down to I think 30, right? The fentanyl tariffs are 20 and then the reciprocals 10 that, I mean, you're seeing it in the market today, right? S&P 500 up about 3% as we're recording this. That is a big move and that's what happens when you get unexpected good news. So we'll talk a little bit more about that as we get through the rest of these slides. But I guess the U.K. people didn't expect that to be an issue, but you did see outperformance right the U.K. up almost 1% last week, and then some pretty good returns out of Europe relative to the U.S.

Jeffrey Buchbinder (06:23):

So turning to the bond market and of course we had the Fed meeting. We expected it to be a nothing burger, and that's generally what it was. Powell's just kind of waiting and seeing the data hasn't reflected much in the way of economic weakness yet that would support a cut. So we're probably going to have to wait another couple months before we get one. So you ended up with bonds selling off a little bit on that, let's call it higher-for-longer narrative. Plus you know, maybe a little bit of reassurance on economic growth working its way into the treasury market as well. I also think it's been interesting to watch oil. Oil's surging today. Really nice bounce there. While gold sells off. Of course gold is a hedge against bad things happening and good things are happening today, certainly relative to expectations. So I'm interested in your thoughts on gold here. Adam

Adam Turnquist (07:18):

Gold looks like a potential double top. Now, on a short term basis, of course, the longer term trend very much intact, but with prices moving lower right now, 32 0 2-ish is kind of the area to watch on gold futures here. If you break that, that would validate a double top and basically imply downside, at least on a technical based metric to kind of the April lows 29 69, 29 50 area. That would be where you'd see support in that measured move in gold. Part of that story is also in the dollar. You can see 101 68 on the screen there coming off of major oversold levels. It was nearly breaking down from this kind of multi-year consolidation range clung to support last week, and we're getting a bounce off those oversold conditions. So we'll see if the dollar can maintain its range. I think that's probably a good sign for equity markets.

Adam Turnquist (08:12):

And then just going back to WTI, crude oil, a big relief rally here off oversold levels, kind of the opposite of what we're seeing in gold. Very bearish sentiment coming in to that low. And now we look at what OPEC Plus is doing. They're adding more barrels each month to basically offset some of the extra production from a a few members. So they're penalizing them a little bit. That's at least on the straight estimates expected to stop in July, but the supply side, a bit of a problem, doesn't seem to matter, at least on a near term basis with this relief rally and oil still in a downtrend. We'll need to clear $65 to really start talking about a breakout from that bottom formation.

Jeffrey Buchbinder (08:57):

Yeah, a lot of movement here which certainly makes doing your job fun <laugh>, Adam, a lot of dynamic charts. So as promised, we'll brief with the recap. Let's go to the Weekly Market Commentary again that Adam wrote this week, which is available on lpl.com, calling it 'Bull Is on Trial: Waiting for a Verdict on a V-shaped Recovery.' So, kind of a different way of saying is the durable low in. So Adam, we started with this economic chart in terms of recession probability and GDP forecasts. Certainly the recession risks have been rising and GDP forecasts have been falling. We cut our forecast again. I think that's the fourth time that we've trimmed it since late last year.

Adam Turnquist (09:45):

Yeah, it has been. And we were on the low end in terms of growth expectations coming into the year already. But I think there's a few messages here. Of course, one of them, the economy is slowing but still growing. We're not talking about full blown recession odds. Our growth expectations, real GDP that is, for this year, I think it's down to 1.3, latest estimate that's down from 1.9%. The good news, we didn't have to cut our estimates as far as some of the other strategists out there. So kudos to our Chief Economist, Jeff Roach, for, for at least being on the right side of it in terms of expectations. And then when you look at recession probabilities, they've been actually rising really since February before we even had any details on the tariffs. I think some people are surprised by that, just given the fact the economy's slowing.

Adam Turnquist (10:34):

I think that makes sense. But when you think about the market pricing in recession odds, I think it did a pretty good job when we're talking about maybe a coin toss or so, in terms of odds for an actual recession, when you look at the average max drawdown during a recession post World War II, it's about on the S&P 500, you're down about 35%. So if you put a 50% probability on there, you would think the S&P would maybe trade down around 17 to 18%. And on a closing basis, that's exactly what it did. On that April 8th low, I think we were down around negative 18% from that February high. So I think it was commensurate with the recession odds. We'll see how any of the new tariff announcements play into growth expectations or even earnings expectations, which seemed to be coming down as well. But for now, still growing. Base case is no recession. Supporting that I think is just the strength in the labor market that we consistently see. Certainly a strong point for the U.S. economy as the Fed kind of has this challenging battle between the labor market and inflation. I think probably the inflation side is what's keeping them up at night more so than maybe the labor market right now.

Jeffrey Buchbinder (11:54):

Yeah, interestingly treasury Secretary Bessent was asked about the economic outlook this morning in an interview. He probably made the rounds, but I heard the one on CNBC and he was asked, well, when is the soft data going to turn into weaker hard data? Right? Soft data being surveys, hard data, being actual data reflecting actual economic activity. And he pushed back on that basically saying that 10 or 20% tariffs are just a recalibration. And the market has shown and the economy has shown that it can handle that. So we're down to 10 across the board minimum on the reciprocal tariffs, and then a little more obviously on China, a little more with autos and steel and some other sector tariffs. But generally speaking, we're at levels pretty close to what the economy has handled before. So it's not a foregone conclusion by any stretch that we're going to, you know, slow to 1%, although our forecast certainly reflects that. So next up chart of the S&P 500. Adam, this is <laugh>, what I would say is cutting through resistance like Swiss cheese <laugh>. Yeah,

Jeffrey Buchbinder (13:07):

That's for you. Packers fan <laugh>.

Adam Turnquist (13:11):

Full disclosure, I'm not a Packers fan even though I live in Green Bay.

Jeffrey Buchbinder (13:19):

In Packers land, you and Packers land, how about that?

Adam Turnquist (13:22):

Yeah, there you go. But certainly an impressive recovery. When we were on, or I think it was on about a month ago, we talked about evidence for a capitulation, and I think we checked enough boxes back then to, to make that call. But this v-shaped recovery so far has been pretty impressive. Basically going through several areas of overhead resistance. The most notable of course is the 200-day moving average right around 57 50, I think we have it at on this chart, getting through some of the January lows as well. So that's going to be a level 58, 27 for those of you looking for some overhead resistance beyond the 200-day, that's the January closing low, but we're not far from record highs in a matter of a month. So from correction to, I think we'll be almost back in the black for the year for the S&P 500.

Adam Turnquist (14:14):

So a big test, and that's why our Weekly Market Commentary, Bulls on Trial, because we've had this very impressive rally, breath has broadened out, momentum has now turned bullish. So can they push and hold the index above that 200-day moving average? Few positives, if you do, of course that does raise or add, really add to the evidence of this being an actual V-shaped recovery versus more of a durable bottom that takes more time and a process that plays out. And then two, it does potentially bring in more institutional demand. There's systematic funds, CTAs or commodity trading advisors, kind of like trend following funds that would kick in as well. They're extremely underweight U.S. equity. So there's some dry powder there to potentially capitulate on some of that more hedge fund money coming back into the market. So you could see this move accelerate. I think if you can hold above that, call it 200-day moving average area,

Jeffrey Buchbinder (15:16):

Yeah, that is certainly a box we can check at this point. So next, this is a study you did that, I mean, at the risk of sounding too negative, it shows that once you recover from these drawdowns, you often see an additional drawdown after that. Is that fair?

Adam Turnquist (15:35):

Yeah. So really what we're trying to show is what happens to the market after a 15% decline from a record high. So we're using unique 15% drawdowns in the S&P 500, and then we're using that date as our timestamp, and then we're looking at 12 months from there. What's the S&P 500 do in terms of percent returns? That's along the x axis. And then what's the draw down over that 12-month period that's on the y axis there. And what you'll see on average is that orange triangle and what you normally see, even after a 15% drawdown, you tend to get an 18 to 19% drawdown after that during the next 12 months. So there's still of course, downside risk even though you've had to call it a deep correction, the market historically has taken out those lows and actually traded lower over the following 12 months.

Adam Turnquist (16:33):

And where we're at now, we've only had a drawdown of five point a half percent. That would mark the lowest drawdown after falling 15% from a record high ever. Well, going back to 1950 when we put this data together. And there is some good news, so I'm not trying to be too bearish here, especially on a big up day with the S&P 500, taking out some key resistance. The S&P tends to be positive at least 12 months later. And you can see on average there up just over 8% with most occurrences actually producing positive returns. Now there's some recession overlaps in actually eight of the 14 periods that we're highlighting here, but even those do not always have a negative 12 month return after when you look at the recession returns as well. So what it suggests on a very short-term basis, yes, there's still some downside risk, but longer-term returns tend to be positive over that 12-month period.

Jeffrey Buchbinder (17:32):

So Adam, just to clarify, what if you go down 15 and then you go back and recapture all those losses,because you could start a 19% draw down from a higher point before you sell down.

Adam Turnquist (17:46):

Yep. So we're simply using the, whenever the S&P hits that 15% drawdown or so, and in the S&P 500 we're using this occurrence would be April 4th. That's our starting point. Does it trade lower beyond that date? And that's when we start using that drawdown data.

Adam Turnquist (18:08):

It's a maximum basis.

Jeffrey Buchbinder (18:11):

So whatever the draw down is measured from that point, the 15% down.

Adam Turnquist (18:15):

Yep, exactly.

Jeffrey Buchbinder (18:15):

Okay. Not from the subsequent high.

Adam Turnquist (18:21):

So this is an additional, what were the S&P trades and additional to the 15%.

Jeffrey Buchbinder (18:26):

So the recession piece of this is really key because if you don't have a recession, there's a very good chance that your subsequent draw down would be more limited.

Adam Turnquist (18:39):

Exactly. It probably boils down to recession or no recession when you start looking at the data.

Jeffrey Buchbinder (18:47):

Very, very, very true. Alright, excellent. So next chart is the sell in May, go away pattern. And this is a little bit of a cautious tale, right? When you look at these numbers, but if you just look at the more recent data, it's not so bad, right?

Adam Turnquist (19:06):

Yeah. The more recent data, much better returns during the May through October period, much higher positivity rates in terms of the S&P 500, finishing higher from that May to October period. But long term, again, going back to the last 75 years, you can see the average gain up 1.8% higher just over 60% of the time. So the worst six month period for the S&P by far, especially when you compare it to the best period November to April with average returns there of about 7%. But look, they're still positive. You're still up almost 2%. The price you pay is higher volatility because you get the VIX starting to advance at least seasonally July, August, and then September, October, the VIX tends to peak late September, early October. So that's kind of the price you pay for, we'll call it a subpar type return, but certainly a lot of opportunity and maybe that trading range and it is seasonal. So you have to think right now, really what matters is not seasonality when you have a trade war going on, you have trade negotiations potentially. There's huge catalyst as we're seeing with this China news. And then of course, what's the Fed going to do? The economy, much bigger drivers of price action. But something to pay attention to, when you're looking at your investment strategy.

Jeffrey Buchbinder (20:26):

Yeah, I also understand that the seasonals get a little bit weaker after you get to about mid-July. So, you know, I'll have you back on sometime in the next month or two and we can dig deeper into this.

Adam Turnquist (20:38):

I wish we could just trade on this and then we could go golfing over the summer and <laugh> come back late October, November and start buying stocks. But of course it's not the real world.

Jeffrey Buchbinder (20:50):

I'd still be bad at golf with a full summer practice, but we digress. So again, all that's in the Weekly Market Commentary and lpl.com really great piece. It really covers a lot of topics, you know, with the Fed, with the technicals, the economic outlook and all of that. I think you maybe even, did you add a sentence to reflect what the news we got over the weekend, Adam?

Adam Turnquist (21:14):

I did. Yeah.

Jeffrey Buchbinder (21:15):

Very good.

Adam Turnquist (21:16):

Was up at two o'clock courtesy of my kids waking up and reading the news on China. And then I couldn't go back to bedbecause I was thinking about the weekly commentaries <laugh>.

Jeffrey Buchbinder (21:26):

So yes, we've had to rewrite those over the weekends. Oh yeah, on a few occasions. This time we just had to add a little, or Adam, I didn't do anything, but this time Adam just had to add a one-liner, a couple lines to reflect that big news. I mean, this is a dramatic change, right? No doubt it's not a trade deal. But it's a dramatic change certainly and gives the U.S. and China time to actually come up with something that's a little closer to a real trade deal and a sustainable de-escalation we'll say. So let's transition to our next section here where Adam, you just threw in some charts to add more color to this question of whether this is a durable low. So we'll start with breadth. I know that's an important barometer for you in trying to assess whether a move is durable.

Adam Turnquist (22:21):

Right, so price action of course certainly important, but we wanna look at what's really going on underneath the surface. What's driving price action in this chart we're showing on the top panel how many stocks are above their 20-day moving average or a short-term moving average. And there's really two bogies to watch for when we're assessing the market in terms of on the drawdown and those washed-out conditions. When you get to below 10%, that's typically where you see the market start to capitulate. We can check the box there. We obviously had that with a single digit reading back in April. And now on the other side of that equation is the recovery. And the bogey there is 90%, that's typically what you see coming off a major market low. The percentage of stocks above their short term moving average almost always gets to above 90%.

Adam Turnquist (23:12):

Now, of course, this time we got to a high of about 88%, so I guess we can call it close enough, but it would've been a lot easier for me to sit here and say 90%, we can check the box. I, I think we're, we're probably close enough on that metric. So we're checking the box on the short-term breath on longer term breath, the percentage of stocks above their 200-day moving average, moving in the right direction would like to see that get above 50%. We're at 44% and we'll see how today's price action shakes out. If we can cross that 50% threshold, that'd be a starting point for I think a recovery. And overall that longer term breadth. So things are moving in the right direction. I think we can certainly check the box on the capitulation. We're pretty much there on this being a durable loan and sustainable recovery. I think maybe the jury's a little bit still out on the, the V-shaped recovery, but the evidence is certainly adding up here for a pretty sharp and quick recovery.

Jeffrey Buchbinder (24:14):

Yeah, I think it's fair to say that the big constraints potentially on this market are one valuations,because we're starting to get a little expensive right now. Maybe all the good news is priced in. That's one. Two, we gotta watch 10-year yield. I know you have a chart of that. That is important to watch because we are inching higher towards 4.5% and we know the market doesn't like five. So that is certainly a potential constraint. And then we have to keep in mind that these tariff rates, we're just on a pause. They're not permanently at low levels. So we'll just have to wait and see how that plays out over the next several months as these negotiations unfold. So those are maybe the three big constraints to watch that could prevent this rebound from being sustainable still. I agree with you, Adam likely to be a durable low from that 48 35 level.

Adam Turnquist (25:12):

Right.

Jeffrey Buchbinder (25:13):

Go ahead.

Adam Turnquist (25:14):

I was just going to say, I think the VIX tends to agree here in terms of implied volatility for the broader market. This is the market's expectation for volatility or price movement in the S&P over the next 30 days. And we use this gauge as a measure of sentiment. Of course, investors will come in when there's expecting higher volatility and bid the index higher. That's why it's called the fear gauge. In peak fear, you could see in April we were at a 60 handle on the VIX. That's kind of a 99th percentile reading. You don't see those very often. When you do, it usually occurs near a market low. And we've subsequently backed off, we're down right back to the long-term average of around 19 and a half. And that's coincidentally not far from the, I guess we're below the 200-day moving average at 19 now.

Adam Turnquist (26:07):

So that's kind of a signal to be more risk on if you're just looking at price movements above the 200-day, that's risk off and below, of course, vice versa, risk on. So the VIX moving in the camp of a V-shaped recovery, or at least definitely a durable low being reached. And we also look at the shape of the VIX curve. So when there's panic in the market, investors have no problem bidding up near term contracts on the VIX, they'll pay more for those than longer dated contracts just for the, I guess they can rest easy at night owning a short term VIX position. And the VIX curve will actually go into what's called backwardation. So that front month contract trading at a premium to longer dated contracts. And when you get market lows or major market lows or panic in the market, you go into that backwardation. It only happens about 20% of the time, but we had a huge spike on that bottom panel in terms of the degree of backwardation.

Adam Turnquist (27:06):

And now I also like to watch when it moves back into what's called contango, that's the normal shape of the VIX curve, and we just crossed that threshold here as well. So we can also check the box in terms of sentiment coming off, we'll call it peak fear. I don't know, Jeff, you could argue probably at policy uncertainty we're maybe past the peak point in that as well. That tends to correlate with the VIX too. So those are both things that we are looking for in trying to identify an actual durable low in the market.

Jeffrey Buchbinder (27:38):

Yeah, one of the other things we were looking for was, of course, better trade headlines. Like something tangible rather than just some throwaway quote in some interview. And we have gotten that. There's no doubt. Now you'd rather have something longer lasting than a 90-day pause, but it is clearly tangible, it's clearly an improvement, and the market can better assess the landscape in terms of reasonable outcomes, which are certainly not worst case scenario. Right. And on April 8th, the market was worried about the worst case scenario that was at the recent lows, or even April 2nd for that matter. So take those off the table, certainly reflect some progress toward really calling the bottom. I know we're well off the bottom. In fact, I think we're like 17% off the lows now, which is really unbelievable. You saw it on the prior chart, the, the V-shape recovery. It is a real v. It's a tall skinny V, which you don't always get. And hey, we'll take it. But the bar for further gains is higher.

Adam Turnquist (28:55):

Yeah, absolutely. We look at several different metrics, really trying to identify what's sustainable here. We talked about price action, we talked about market breadth, we talked about the VIX. And one other aspect is just leadership in the market. When you're coming off a low, you want to see the market move from defensive leadership, which was the case on the way down, to more offensive or cyclical leadership. So we throw the equal weight consumer discretionary versus equal weight consumer staples, sectors in a ratio chart, which is what we're showing here. So as this is moving higher, that's indicative of more of a risk on environment. People are buying things that they want more so than things that they need. And it's been a great barometer for risk appetite, going back to basically the bear market lows in 2022 up and to the right.

Adam Turnquist (29:45):

There's been some volatility to say the least here in this ratio chart, we broke that up trend and broke below the 200-day moving average, but we've actually had a pretty remarkable bounce higher here with consumer discretionary starting to lead again, not back above that 200-day moving average. So this is something I'll be watching carefully along with other leadership trends in the market, just to really assess where is risk appetite? Is this just a relief rally off oversold levels or is this a durable trend change? Getting back above that 200-day in this ratio chart, I think would suggest more of a durable trend change to those cyclical type sectors leading the way.

Jeffrey Buchbinder (30:27):

Another sector that represents offense is the financials. And this chart looks pretty good too, huh?

Adam Turnquist (30:34):

Yeah, this one's been surprising when you look at just the snapback we've had right off the 2021 highs that's a major support level and we've already got back above the 200-day, and now we're not far from record highs for the financial sector. And this has been one that has steadily led the S&P 500 over the last year. On that bottom panel, another ratio chart with the sector versus the S&P. And this is moving higher, that's indicative of that relative strength in the sector. And even when we got back down to the April lows financials, were still holding up, it was one of the only cyclical sectors that was actually still in a leadership state against the broader market, which made you wonder how much worse can it get if financials are still leading. And I think it helped at least when we were looking at the market at that stage and trying to identify a market low that the fact that financials hadn't rolled over yet against the broader market, certainly a good sign. And look, the trend has been very consistent in that rising price channel and that tells us look for further financial outperformance ahead. That's certainly now our view within LPL Research is we recently went to a positive or overweight view on the sector.

Jeffrey Buchbinder (31:49):

Yeah, thanks for pointing that out and I was just going to go there. Financials and communication services are our two favorite sectors. And what I like about financials right now, other than the chart, is that it's not one of the high tariff risk sectors. So if we do see some tariff rates go back up again after this 90-day pause, which by the way, every country has now in addition to China, then financials are in a good position to hold up relatively well. Now, if you think we're off to the races and tariff rates of 10% are really all we're going to get pretty much for everybody, plus a little bit of fentanyl tariffs, perhaps then maybe you'd look to consumer discretionary or tech. Those seem to have more tariff risk in them and therefore better news ahead on trade might be reflected in outperformance for those two areas.

Jeffrey Buchbinder (32:46):

So let's keep moving. I mentioned the 10-year yield. Well, here it is. This is one of the risks going forward. I think it's fair to say. People are talking about this a lot because of the, you know, they're working on the tax bill and you know, with that of course comes more deficit spending and treasury supply, but you also have maybe a better economic growth outlook if trade doesn't drag growth as much as maybe we think, that could put upward pressure on the 10-year. How do the technicals look, Adam?

Adam Turnquist (33:21):

This is probably my least favorite chart right now, just because it's that sloppy on the 10-year, and no offense to any of the bond traders out there. As someone that used to work in that industry, it's just every week it's just continuing to consolidate here in a big way. You can see coming from, you know, 370, 380 up to 450. And really you can see this consolidation, if you just look at the direction of the 200-day moving average, it's flat. We've had a big range around that 200-day moving average. We call this basically just a symmetrical triangle formation. And what you tend to see in these patterns is you break out near as you get closer and closer to that apex, is buyers and sellers kind of reach a breaking point. We're near the upper end of that red line, that's the upper end of that triangle formation.

Adam Turnquist (34:13):

So watch for a potential breakout there. There's some additional resistance kind of in the 450 to 460 range, but certainly a chart that could throw some cold water on the equity market rally if we start talking about a 10-year breaking 450, 460. And we revisit some of those highs from last year or earlier this year. So we'll call it a chart that keeps me up at night as well, just with that upside risk. Still in a consolidation for now, but you're uncomfortably high retesting that downtrend on the 10-year and we'll see what happens over the next couple weeks here.

Jeffrey Buchbinder (34:51):

Yeah, so we're pretty much hugging the benchmark, right? Neutral equity, neutral, generally, speaking neutral fixed income. And I mentioned some of the things that maybe are going to limit the upside from here. Of course we don't have a crystal ball so we could be wrong, but maybe we'll look at the upside case, sort of 6,100 to 6,200. But our base case is still kind of right where this market is right now, so we don't see a ton of upside. We of course always reserve our, the right to change our views, but at this point based on the assumption that maybe some of these tariff rates will go back up a bit and trade uncertainty is continuing and there's a lot of signs that the economy is slowing, maybe not dramatically, earnings are slowing, certainly too.

Jeffrey Buchbinder (35:43):

Throw all that together. We think maybe in the short term there's a touch more downside than upside. So you're probably not going to see us go overweight equities this week, but certainly something we're going to be talking about or underweight, frankly. So let's preview the week ahead before we close. Here is the economic calendar. Tariffs are going to start to seep into the data here, because this is April data, but the problem is we're seeing a little bit of, you know, a rush to order ahead of tariffs, right? That's going to seep in here too. So I think this data's going to be really noisy and even if you assume that it's legit data, it's just kind of early in the tariff regime to start drawing conclusions about what May and June are going to look like. So, I don't know, it's going to be tough to draw conclusions. What do you think, Adam? Anything?

Adam Turnquist (36:40):

I think you're spot on. You throw the front running of tariffs into the mix. We have some April data there, or mostly April data. There's some May data on the calendar, but how do you really delineate between actual demand and what was front running demand? What's sustainable? So for me, I think I''ll probably look at building permits, not exactly an exciting one, but I like to look at just the housing sector as a leading economic indicator. Of course building permits are more forward-looking. Watching some of the home builders, they've certainly been beaten up at the index level down 35, 40%, that's commensurate with almost the bear market type drawdown. So we'll see what the housing sector has to say maybe this week in those building permits.

Jeffrey Buchbinder (37:29):

Yeah, you know what I think is going to be interesting and our Chief Economist, Jeffrey Roach pointed this out this morning? The small business optimism in ex small companies might have a tougher time managing tariffs. And so we've basically gone from 2% to 10. If just veteran where we were before any of these new tariffs were announced, plus the reciprocal. It's a soft data report, right? Small business optimism. It is a survey. So that actually might be telling, you could argue that the soft data might be more important still than the hard data. So that's one to watch. Normally we would say CPI and retail sales are the most important things to watch but right now, maybe not so much.

Adam Turnquist (38:15):

Yeah, gloss over those.

Jeffrey Buchbinder (38:17):

Yeah, I know. And then the earning season is not really that meaningful either because we only get 12 companies, but it'll be interesting to see if any talk about the new China reduced tariff rates and the impact that could potentially have on the business. They're going to have to change their scripts real fast, because these companies are reporting in some cases 24 hours after they got this news. Nonetheless, I'm sure that the analyst community will ask questions about that and companies that are China-sensitive will have some color. So that will be interesting. But it's 12 companies. The earning season's going to get much more interesting in two weeks, week after this one because we have Nvidia, and I believe that's when we get Walmart and Target. So stay tuned. The retailers are going to give us good information next week along with Nvidia, which is always a big one. Meanwhile, we'll watch for headlines on trade. Of course, the Trump 2.0 has given us plenty of headlines, day to day. So we're going to have to continue to pay attention to what we get out of the White House. So anything else to add to that, Adam, or should we wrap?

Adam Turnquist (39:28):

Probably wrap. I think think we got through it all.

Jeffrey Buchbinder (39:32):

Yeah, we got through a lot. So that's where we are. Certainly a fluid situation on trade, but a much more comfortable place after these rates came down. So think investors, you're seeing it today in this big rally are expressing their approval. So thanks Adam for joining, going through all those charts, really a lot of great, great insights. And thanks for the Weekly Market Commentary this week. Excellent job there. We will be back with you next week for another episode of Market Signals. Thanks everybody for watching. We'll talk to you next week.