As I’ve mentioned, the assumptions behind S&P 500 earnings estimates were too optimistic, and valuations made this one of the most expensive markets in a generation. So, we’ll see where things go, but right now, with 5,400 breaking, we could be heading back toward 5,200—that price point we’ve discussed for some time—unless the market snaps back quickly and reclaims 5,400.
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That may be problematic because we get the jobs report tomorrow, with an expected unemployment rate of 4.1%, but Kalshi is pricing at a rate of 4.2%. Additionally, Powell will speak tomorrow, and today, a few Fed officials, including Vice-Chair Jefferson, are talking about taking a wait-and-see approach. It sounds like a higher risk of unemployment and Powell giving the market a shoulder shrug tomorrow. Unfortunately, no one will rush in to save the equity market at this point.
The CDX HY Index was wider today, moving up to 410 bps, and it comes to an interesting point in the road. I don’t know what happens next, but at the very least this seems to suggest that either we are going to see the market pause and stabilize, or things are about to get a lot worse.
I think things will move quickly if you get a higher-than-expected unemployment rate and a wait-and-see Powell.
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