Recession anatomy

S&P 500 declined on strong core PCE data, but I doubted the opening gloom, and favored a positive move during the regular session. In spite of the disastrous market breadth (advance-decline line and advance-decline volume), Monday would bring a tired continuation of the upswing into 3,980 – 4,010s zone, overcoming which with a close near 4,045, doesn‘t look likely given what‘s in store this week.

Tuesday‘s consumer confidence data are likely not to disappoint as personal savings rate had been recently revised upwards (4.7%), suggesting that the consumer still has the wiggle room to withstand inflation. Remember when I was telling you last year that consumer strength would be the defining factor in the shape of the upcoming recession – and contrast that with what we have seen play out in the markets in only the last couple of weeks – from hard to soft landing, then the no landing came (as if strong Jan data in non- farm payrolls and housing not tanking on, are to be proven as little more than a year entry oddity and brief respite).

Seriously, I expect the job market to start noticeably deteriorating (e.g. in unemployment claims) from Mar onwards, and the ongoing mortgage rates of 7% to snuff out the temporary housing stabilization. Circling back to the consumer, retail sales for now wouldn‘t be deteriorating either – while rising in nominal terms, they had been really flat in real terms since mid 2021, revealing the spending growth to be of merely inflationary nature.

So, that‘s Tuesday and consumer confidence which still shouldn‘t tank the markets – regardless of the woeful and nonchalantly ignored bond market performance over the recent weeks (these rates would keep biting even more, especially on the short end).

The latter half of this week doesn‘t look to be promising for stock bulls though – especially the manufacturing, and to a lesser degree services PMIs, are to reveal recessionary clues impossible to ignore.

Remember the sequence of recession countdown and progression – first real estate going down (check), manufacturing down (check), services with a lag (check), inflation peaking (sure the revisions and calculation „revamps“ helped here), and finally job market layoffs spreading (wait for Mar/Apr) together with earnings coming in weak (check) forcing sigtnificant earnings downgradeds for the quarters ahead (still to come, seriously starting late Q2 even as modest earnings recession has already arrived, and the low $180s EPS need solid downgrading).

Plenty to look for as stocks readjust to new economic realities!

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Let‘s move right into the charts.

S&P 500 and Nasdaq outlook

4,015 will be again a tough nut to crack as the base for S&P 500 advance is so weak after Friday, but can carry the buyers a bit forward from the roughly 3,980 area. The low volume speaks to me of non-confirmation, so the rebound in line with the macroeconomic introduction in the opening part of today’s analysis, and is to be short-lived.

Credit markets

No, this “risk-on” rebound doesn’t count to me as reversal – the pressure from the short- end of the curve is to keep increasing (just have a look at last week’s extensive analysis aptly called Fuse Has Been Lit.