1. When De-escalation meets Recession
2. The Walmart Indicator
3. NOKSEK – From Momentum to Mean Reversion
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1.When De-escalation meets Recession
This week has seen equities follow the post Liberation Day playbook. But at some point, the risk is this relief rally bumps up against other narratives - high energy/food prices, a Fed “policy error”, a recession.
Investors are left trying to navigate the fear of being caught short in any de-escalation rally, versus longer term fundamental concerns for the economy.
At the sector level, Materials are the second-best performing sector in the S&P500 YtD, up 9.3%. The long-term prognosis is positive but, for the tactically minded, the sector could be vulnerable to profit-taking in a de-escalation scenario. Staples have also fared well, but increased recession fears would probably add extra momentum.
Qi shows Materials outperform on higher energy, a stronger Dollar, a hawkish Fed that bear flattens the yield curve. All that has transpired but Materials have overshot & now screen as 1.5 sigma (4.6%) rich to Consumer Staples. That’s towards the top end of recent FVG ranges, & recent correlations point to the “right” kind of mean reversion.
Continue reading our analysis by downloading the PDF above
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