The Week Ahead

Macro Movers

A Turn in Geneva

I viewed the rhetoric around the U.S.-U.K. trade framework as indicative that 10% was going to be the rate for close allies. Based on headlines coming out of Geneva, 10% may be the universal rate the administration had in mind.

Key Points (CNBC)

Although this only stands for 90 days, a sign of good faith for the sake of negotiations, the markets aren’t waiting around. As time of writing—7.27AM to account for this update—futures were up across the board: Dow, 2.5%; S&P 500; 3%; NASDAQ, 4%. In an interview this morning, Treasury Secretary Bessent implied he expect another round of talk in the next two weeks.

Hard and Soft Data 

Markets will have plenty more to digest in the form of eco-data this week. The Fed held rates steady last week, pointing to resilience in the labor market as providing them the ability to be patient while they assess how tariffs and immigration might affect inflation and employment.

Payrolls the week prior gave them the confidence to make that call with bass in their voice. Now we’ll see what this week’s data influences the debate. The market will be watching for continued disinflation, steady retail sales, and signs of a sentiment bottom.

CPI and PPI

• Core CPI MoM is forecasted at 0.3% v. 0.1% prior
• Core CPI YoY is expected at 2.8%, in line with prior
• Core PPI MoM is forecasted at 0.3% v. -0.1% prior

Retail Sales

• Headline retail sales is expected to print 0.1% v. 1.4% prior
• Ex-Autos consensus is set at 0.3% v. 0.5%

UMich Sentiment (Preliminary, May)

• Preliminary reading on May UMich Sentiment is forecasted at 53.0 v. 52.2 prior

Micro Movers

Bears Know No Shame

Bears have acknowledged the positive momentum but insist this is just a bear market rally. You see it in the flows: tactical buying in long options, market ETFs, and clear beta plays. Easy places to get in and get out.

Some stocks are now trading above their April levels. Crazy to think about how different the economic backdrop was then. What’s even crazier is the stocks I am referencing aren’t defensives. We’re talking about Visa (V), Mastercard (MA), JPMorgan (JPM)… you get the idea. If the market genuinely believed the floodgates on unemployment were about to blow open, you wouldn’t be seeing this kind of V-shaped recovery in names exposed to the consumer and economy. So, if this is a head fake, it will be the head fake of head fakes. These names reclaimed these level before the meeting in Switzerland was even arrange.

Right on schedule, the bears are changing their thesis, insisting they never actually prophesied the very narratives they were spouting to anyone who would listen. No, they never forecasted an imminent recession or claimed the next leg down would come when companies pulled guidance (they did—don’t let them tell you otherwise). Now it’s all about front-run demand giving bulls 3–6 months of inventory coverage. So, party on until then.

With this news on China, I imagine they’ll rewrite the narrative (again) to argue that the market—not them, never them—is wrong for going up, and invent something new to scare people. I imagine they’ll argue the die is cast and the market won’t look through weakness when it comes. I would take the other side of that and argue they are underestimating how much this deal—if it holds and evolves into comprehensive framework—reduces recession probabilities.

Maybe they end up being right. But for me, how you get there matters just as much.

Fresh Thoughts

The Case for 4800 as the Bottom

Although I fundamentally agree that it would be far too easy for the market to stroll back to all-time highs without hard data—which we’re unlikely to get for another 3–6 months—to confirm the worst is behind us, tariffs at this level likely signal an end to the de facto trade embargo. In my opinion, that increases the probability that Q2 earnings (which come with Q3 guidance) will make a strong case for a Q2 bottom in earnings, which opens opens the door for 4800 to be the bottom.

Easier Path to Cut

Finally, while the Fed would never admit it, this makes their job easier. In my view, the promise of renewed economic activity reduces risk around the employment mandate and allows them to focus more squarely on inflation, which makes the case for rate cuts easier. While yields across the curve are rising this morning—suggesting the perceived need for cuts has diminished—I’d attribute that to a brighter economic outlook tied to the opening of a real trade framework with China that reduces the probability of recession. If we aren’t having a recession, then the risk-reward favors stocks.

Gorilla w/o Glasses

In the interest of fairness to the bears, I couldn’t have predicted this market recovery either. I can’t see the future. If I could, I’d be putting that skill to better use. The idea that individual stocks would rise above their April levels ahead of any real trade developments with China still baffles me. 

As 2022 became 2023, it was foolish to deny what prices were forecasting and get left behind on the bear-case hill. Instead of getting smacked by a wall of pessimism, stocks climbed a wall of worry. The U.S. economy refused to give in to job market attrition, it was clear inflation had peaked, the Fed backed-off, and the S&P 500 tallied a return of ~26%.

I bring it up to say this: perhaps hindsight will look back at this day as the “wasn’t it so obvious” catalyst that shifted the situation from an unavoidable wall of pessimism to a climbable wall of worry.

Earnings Highlights

• CyberArk (CYBR): Cybersecurity may be the only sector where I’d bet on individual stocks making new highs in this environment. This Israel-based outfit is trying to break back into its pre-April trading range. Fortinet’s (FTNT) early May report wasn’t well received, but it entered earnings well above April levels.
• CoreWeave (CRWV): At ~$51, CRWV is up ~28% from its $40 IPO. If their quarter shows that initial skepticism was misplaced, this could perform well coming out of the print. I’ll be listening for insights on data center demand and watching the reaction for a read on AI-animal spirits.
• Walmart (WMT): A deep connection with the consumer makes this quarter a must-listen. While sentiment is clearly poor, WMT could offer anecdotal evidence on whether that’s showing up in purchasing behavior.

I am not long any of these names.