Markets are rebounding, but trends remain cautious. Hard data is strong, while soft data weakens. Earnings estimates are falling, and US equities lag stronger global markets. Positioning stays defensive, with select exposure to resilient sectors like financials and commodities, while tech shows signs of fatigue and gold begins to consolidate.
Key Points:
Market Bounce Faces Resistance Amid Downtrend
- Markets have bounced from oversold conditions after a sharp early-April drawdown, but technical signals remain bearish. The S&P 500 remains below both the 50- and 200-day moving averages, which are declining. The recent bounce appears to be a technical rally, not yet backed by strong breadth or conviction, and could retrace if macro data weakens.
Divergence Between Hard and Soft Data Creates Confusion
- While backward-looking hard data (e.g. employment, economic activity) remains relatively strong, soft data (like CEO and consumer confidence) is weakening. Consumer sentiment is declining ahead of the unemployment rate, a classic early warning signal. Investors should be cautious interpreting recent macro numbers as they may mask emerging economic stress.
Earnings Revisions Continue Downward, Guidance Uncertain
- Q1 S&P 500 earnings estimates have declined for three straight weeks, now sitting around $264 (down from $266 last week). This marks the worst period of net earnings revisions since 2020. Although results may not dramatically miss expectations, the real risk lies in weaker forward guidance, as many companies are expressing lower confidence.
US Market Losing Relative Strength to Global Equities
- After years of outperformance, US equities are underperforming international markets. ETFs tracking global equities ex-US (like SPDW) are trading above both rising 50- and 200-day moving averages and are making new highs. European markets—especially Germany, France, Italy, and Spain—are showing technical strength, while US indices lag.
Defensive Positioning Remains a Priority
- Barometer mandates remain highly defensive, holding 35–40% in cash or short-term instruments. Exposure to cyclicals like industrials, transports, and consumer discretionary remains low or absent due to weak relative strength and technical patterns. Leadership is being observed in sectors like financials (especially insurance), exchanges, and select energy plays (e.g., gas over oil).
Commodities and Gold Outperformance Moderates
- Commodities have outperformed the equal-weighted S&P 500 in recent months, with gold particularly strong. However, gold recently reached an overbought level—70–80% above its 200-week moving average. Given seasonal weakness (May–July), partial profit-taking has occurred in gold producers to preserve optionality and manage exposure.
Technology at Risk After Leadership Breaks Down
- The “Magnificent Seven” tech names are no longer leading. The sector is underperforming and remains below major moving averages. Investor positioning is still heavy in tech despite slowing growth and reduced capex (e.g. Meta, Apple, Tesla). The relative strength of tech vs. the S&P has weakened notably, suggesting a secular rotation may be underway.
Watching for Retests and Breadth Weakness Before Re-risking
- Indicators like bullish percent (stocks in uptrends) and stocks above the 200-day moving average have improved but remain below historical norms and often retest. With volatility elevated and risk premiums still high, the team is closely monitoring for signs of a second low or breakdown before deploying more capital—especially into crowded sectors like tech.