DC Lite #337

In partnership with

1. Fiscal deficit vs. recessions. "A good way to blow out the deficit is to have a recession, which is quickly becoming a consensus outlook."

2. HY spreads. "High Yield spreads have widened sharply on growth fears but still remain well below the 2022 peaks of ~600 bps. Watch how spreads behave for signs of divergence or confirmation of equity market weakness."

3. Sentiment Indicator. "Our Sentiment Indicator declined to -2.5 this week (from -1.2), a level that has previously signaled a tactical trading opportunity. The primary driver of the change in the SI was a sharp reduction in hedge fund net exposure. Past SI readings of -2 standard deviations or lower have preceded average 2-week S&P 500 returns of 2.6%."

4. Sector valuations. Multiples have compressed sharply across sectors.

5. ‘No Recession' bears. "'No recession' bears are rare, with only three recorded in the past century (the last being in 2022)."

ICYMI

• Fri 4/4 #336: "A spike above 45 in the $VIX has generally been a pretty good panic-clearing signal"

• Thu 4/3 #335: Today’s 4.8% decline was the worst since June 2020

• Wed 4/2 #334: Here is the full list of reciprocal tariffs. Noticeably absent: Canada, Mexico, Russia

• Tue 4/1 #333: "Historically, when the SPX breaks a quarterly streak of exactly 5 up quarters, forward returns are negatively skewed"

• Mon 3/31 #332: “The trend is your friend, until it ends. The U.S. stock market is no longer in an Up-trend”