- Friday’s selloff in equities came as a surprise, especially considering the week was largely a mixed bag on the economic data front. The intermediate moving average is rising into 294 on the VTI and should provide support moving forward. In the event of any downside penetrations, I expect a quick retracement and eventually a break to new highs.
- Fears and expectations of higher inflation brought about by tariffs continue to act as headwinds to risk. With the dollar and yields inching lower, I expect the economic data to reflect cooling conditions in the months ahead. Trump loves a strong market and therefore policy is likely to lean toward risk-on more so than balanced trade (i.e. risk off).
- As the dollar falls, foreign markets – particularly China – will have greater liberties to devalue their own currencies, leading to rising global liquidity. This scenario is bullish risk.
- The only data point of interest to me next week is headline and Core PCE, accompanied by a slate of FOMC member speeches that I expect to be somewhat more dovish than is currently priced in. If year over year PCE comes in lower than expected, markets may begin to price cuts back in which could be the catalyst that sends markets higher. On the other hand, another surprise to the upside is likely to price out the 2 cuts currently slated for this year, subsequently suppressing risk.
