No Fear Recession

S&P 500 bears lost gained ground early in Friday‘s session – the false dawn in manufacturing (and services) PMIs (similar to real estate) didn‘t spur enough Fed tightening bets. Even if oil corrected to my $77.50 Friday, that‘s though not enough to support all out rebounds in PMIs unless the dollar agrees, and manufacturing would turn lower again over the coming 2+ months as LEIs continue declining for 12 months in a row and counting.

Even if there is calm in the banking sector, the Fed is set to not only raise by 25bp in May but also to continue shrinking its balance sheet. Meanwhile, commercial banks experience continued deposits outflow, AAPL has entered with its account offering of over 4%, and fresh credit creation is hampered, adding to liquidity and M2 woes as much as Treasury having to turn around and start replenishing its General Account at the Fed soon.

For now, the relative calm allowing for tired S&P 500 upswing continuation, goes on as bears keep fumbling intraday on Monday too. The buyers are running on borrowed time, and the downside remains greater than the upside – not only would positive seasonality be gone, but monetary policy won‘t really change in 2023 no matter how many rate cuts are priced into the bond market. The debt ceiling won‘t be resolved too quickly either – it‘ll still turn into a drama.

While earnings aren‘t so far outdoing the dialed-back expectations on the downside (-6.2% decline this quarter is on track), the housing lull is set to go, the job market‘s forward-looking indicators are on a solidly deteriorating track already, and core inflation is to remain sticky – not allowing for jubilation or Fed victory declaration (Powell conference will surprise next week).

Meanwhile, the ever-narrowing market leadership (one-tenth of the S&P 500 stocks explaining around 90% of returns this year – market breadth I took on amply in the extensive analysis one week ago), reminds me of the late 2021 topping process, and underlines that markets are most vulnerable when the leadership is narrow (hello AAPL and company).

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Let‘s move right into the charts (all courtesy of

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

In the very short term, this looks like a downswing rejection – the best the bear could do Friday was a draw. Not a break below 4,136, but coming back to the midpoint of 4,115 and 4,188. When there is no follow-through selling (and when even on reasons good enough it gets rejected as if the market had no fear of recession), the buyers can continue grinding higher before meeting resistance first at 4,188, and then 4,209.

Market breadth wouldn‘t though miraculously improve on such an upswing – the non-confirmations and red flags from bonds and small caps, would remain – no matter how great tech overall would continue doing.

As stated on Friday, for all the selling kicking in in NVDA and AAPL, this isn‘t yet enough – and TSLA is likely to retrace a modest part of its post-earnings decline. I‘m waiting for a green light from XLF, XLI, and XLB, which should start following XLC and XLU lower – we aren‘t yet there at this maximum bearish constellation, and following botched Friday and today, fresh earnings catalyst (many key companies reporting this week including MA) or hawkish Fed pronouncements conflicting market‘s dovish turn perceptions (absent for now as it‘s pre FOMC), is required.

A picture speaks a thousand words – the prime candidate for rolling over in the tech behemoths.


Credit Markets


The HYG run higher into the closing bell, is the most concerning element of Friday‘s session – risk-off whiffs that are intraday rejected, haven‘t yet posed a lasting obstacles to the buyers. That would change over the coming weeks with deteriorating economic data and stubborn inflation figures.

Gold, Silver, and Miners

gold, silver and miners

As I wrote in Friday‘s premium analysis, I was looking for dialing back the recent optimism in precious metals and commodities, for oil at $77.50 ultimately not holding (check that next week) while copper breaks below $4. Of course, the prior local lows in this correction for gold and silver would still more likely than not give (it‘s still below $1,970 and $24.10 respectively), but don‘t bet the farm on that thanks to the dillydallying dollar. The approaching recessionary data together with still tight Fed would hurt – and neither USD nor bonds have yet properly noticed.

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