Low Volume Given the Moves

- NYSE volume 17% below its one-month average

- NASDAQ volume 9% below its one-month average

- VIX index: up 15.68% to 21.62

Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

I am adding to my SPY $554.19 and QQQ $467.37 rentals after the close.

Thanks for reading my Diary today, all year and for the last 28 years.

Enjoy the weekend.

Be safe  

Positives,

1) Initial jobless claims were little changed w/o/w at 224k vs 225k (revised up by 2k) . That was about as expected. Continuing claims fell to 1.856mm, down from 1.881mm and below the estimate of 1.886mm.

2) The March US manufacturing and services composite PMI rose to 53.5 from 51.6. It was all led though by the services sector which rose to 54.3 from 51 while manufacturing fell back below 50 at 49.8 from 52.7.

3) Personal income rose .8% m/o/m which was double the estimate, partly offset by a 2 tenths downward revision to January. Private sector wages/salaries in particular rose .5% m/o/m and by 3.2% y/o/y vs 3.9% in January. Transfer payments continue to drive the headline income beat with a 2.2% m/o/m gain after a 1.8% jump in the month before. Medicaid payments especially were up sharply within this. Combine both income and spending and the savings rate rose to 4.6% from 4.3% and that is the most since June 2024 but still pretty low.

4) Pending home sales in February rose 2% m/o/m after a 4.6% drop in January and a 4.2% decline in December which took this index to a record low since it started. That was just above the estimate of up 1%. The gain was led almost entirely by the 6.2% increase in sales in the South which followed a 9.2% fall in the month before (blame the weather?) . Sales fell in the West and Northeast and were up slightly in the Midwest. The NAR said it as it is, “Despite the modest monthly increase, contract signings remain well below normal historical levels.”

5) New home sales in February totaled 676k, about as expected and up from 664k last month.

6) The Apartment List National Report for March and said its new rent index rose .6% m/o/m, up for a 2nd month and helped by seasonality. The index though is still down .4% y/o/y "but is slowly inching back toward positive territory." The supply side continues to be the issue with rent growth, particularly in the Sunbelt states with the vacancy rate rising to 6.9%, up one tenth m/o/m. Austin is the softest market. They said "2024 saw the most new apartment completions since the mid-1908s, and with 750k units still in the construction pipeline, the supply boom has runway to continue this year."

7) Within the durable goods report, core shipments, which get plugged into GDP, jumped by .9%, well above the estimate of up .2%. This is likely due to the rush to get product before tariffs but will lift Q1 GDP estimates.

8) From Carnival: "We achieved a robust 7.3% yield increase, smashing our yield guidance on top of last year's 17% yield improvement. Both ticket and onboard equally outperformed on very strong close-end demand, which speaks to the strength of our consumer…For the full year, and despite heightened macroeconomic and geopolitical volatility since providing our December guidance, we are taking up yields by .5 pt to 4.7% based on our strong first quarter results while affirming yield expectations for the remainder of the year."

9) France and Spain released its preliminary March CPI figures and they were both less than expected.

10) The UK had good news with its February retail sales data which rose 1% m/o/m ex auto fuel, well better than the estimate of down .5%, partly offset by a 5 tenths downward revision to January. The growth was broad based.

11) In the UK, headline CPI rose 2.8% y/o/y, 2 tenths less than expected while the core rate was higher by 3.5%, one tenth under the estimate and vs 3.7% in January. The inflation issue in the UK continues to be the services side where prices rose 5% y/o/y, the same pace seen in the month before and one tenth above the consensus. The ONS said slower clothing price gains helped to slightly cool inflation on the goods side.

12) Economic confidence has risen in Germany with the new Chancellor and release of the 'debt brake'. The March IFO business confidence index rose to 86.7 from 85.3 as expected but is now at the best level since July 2024, though still dancing along the bottom. Most of the lift off the lows has come in the Expectations component as Current Conditions are still muted. The IFO said succinctly, "German businesses are hoping for a recovery."

13) CPI in February in Australia was up 2.4% y/o/y vs the forecast of 2.5%. The trimmed mean rate which is what the RBA looks at the most was up by 2.7%, also one tenth less than expected.

14) Australia's PMI index lifted to 51.3 from 50.6 with both components higher m/o/m and with both above 50.

15) India's PMI held strong at 58.6 vs 58.8 with manufacturing at 57.6 and services at 57.7.

16) The European PMI was mixed as manufacturing rose to 48.7 from 47.6, though still below 50 while services slipped to 50.4 from 50.6. S&P Global had some interesting insight, "Just in time with the beginning of spring we may see the first green shoots in manufacturing. While we should not be carried away by a single data point, it is noteworthy that manufacturers expanded their output for the first time since March 2023. It's also encouraging, that the index output has risen for three months straight. This is complemented by a much softer fall in new orders and employment. One could pour some cold water on this development arguing that it's the temporary tariff-related import boom from the US which has driven the improvement in manufacturing. However, given the will of Europe, to invest heavily in defense and infrastructure - in Germany a corresponding historical fiscal package has been approved only last week - hope for a more sustained recovery seems well founded."

17) The UK PMI rose 1.5 pts m/o/m to 52 with all the help coming from services which rose to 53.2 from 51. Manufacturing softened further to just 44.6 from 46.9.

Negatives,

1) Headline PCE in February rose by .3% as expected but the core rate was higher by .4%, one tenth above the estimate. Prices rose 2.5% y/o/y headline and 2.8% ex food and energy vs 2.5% and 2.6% in the month before respectively. Service prices were up 3.5% y/o/y while goods prices were up by .4% y/o/y, higher for a 2nd month after a string of declines.

2) Personal spending was a bit light as it grew by .4% m/o/m, one tenth less than expected and follows a 3 tenths drop in January which was revised down by one tenth. These are nominal figures so soft on a REAL basis.

3) Reflecting the major pull forward of orders ahead of tariffs, the US goods trade deficit in February was a huge $147.9b vs $155.6b in January and compared to ‘just’ $104b in November. This also compares to about $90b in January and February in 2024. The estimate was $139b.

4) Non-defense capital goods ex aircraft orders in February unexpectedly fell by .3% m/o/m vs the estimate of a gain of .2% and follows a .9% rise in January (revised up by one tenth) . They are now down 1.2% y/o/y.

5) A reminder that cuts in government spending, while desperately needed long term, will result in near term economic weakness, Bloomberg News reports the termination by the DOD of a software contract with Oracle. Across governmental agencies, assume this is now happening every week in various shapes and sizes.

6) I’m all for the US producing more autos in the US and bringing back manufacturing jobs but I don’t believe the current plan will be a net benefit to the economy of the US, the risks over a multi year period are huge and the retaliation is going to hurt.

7) The comments from the Dallas Fed’s monthly energy survey are worth a read, https://www.dallasfed.org/research/surveys/des/2025/2501#tab-comments.

8) Purchase applications for the week ended 3/21 were flattish for a 2nd week, up by .7% w/o/w while refi's fell by 5.3%, down for a 2nd week after a sharp rise in the two weeks prior. The average 30 yr mortgage rate held at 6.71%.

9) Good for homeowners but not for first time buyers or most of the industry that relies on housing turnover, the national home price index for January from S&P CoreLogic which rose .6% m/o/m and by 4.1% y/o/y.

10) The March Consumer confidence index from the Conference Board fell to 92.9 from 100.1, just below the estimate and at the lowest level since January 2021. Most of the decline was led by the Expectations component which dropped almost 10 pts m/o/m. The Present Situation was lower by 3.6 pts from February. One year inflation expectations are now at 6.2%, up from 5.8% last month and 5.2% in the month before “as consumers remained concerned about high prices for key household staples like eggs and the impact of tariffs” said the Conference Board. The answers to the labor market questions were little changed m/o/m but did soften last month. And, expectations over the coming 6 months for the labor market continues to deteriorate with those seeing ‘more jobs’ falling 2.1 pts to the lowest level since August 2024. Expectations for income also weakened, declining by 2.5 pts sequentially to the lowest since June 2024. Spending intentions were mixed. Bottom line, not surprisingly, “Comments on the current Administration and its policies, both positive and negative, dominated consumers’ write-in responses on what is affecting their views of the economy. Write-in responses also showed that inflation is still a major concern for consumers and that worries about the impact of trade policies and tariffs in particular are on the rise. There were also more references than usual to economic and policy uncertainty.”

11) The March Richmond manufacturing index fell back under zero at -4 from +6 in February. Prices paid and received jumped sharply m/o/m. Also of note, the 6 month outlook for the prices paid annualized percent change went from 4.6% to 7.2%. For those received, to 4% from 3.2%.

12) The March Philly non-manufacturing index fell sharply to -32.5 from -13.1 and is now negative for 5 straight months.

13) From Lululemon: "As you have seen, we started this year with several compelling new product launches, but we also believe the dynamic macro environment has contributed to a more cautious consumer. In fact, based on a survey we conducted earlier this month in conjunction with Ipsos, consumers are spending less due to increased concerns about inflation and the economy. This is manifesting itself into slower traffic across the industry in the US in quarter one, which we are experiencing in our business as well."

14) From Dollar Tree: "In recent weeks, many retailers reported that customers, particularly middle income customers, are shifting towards alternatives that present value. Dollar Tree is also seeing middle income shoppers who make up about half of our customer base focusing more on value. At the same time, we are seeing stronger demand from higher income customers, who increasingly see Dollar Tree as a cost effective source for an expanding range of products. This trade-in has helped to offset other headwinds."

15) From Winnebago: "As expected, soft retail and growing macroeconomic uncertainty continue to create a challenging sales environment across the outdoor recreation industry in our second quarter. Consequently, we remain intently focused on the factors in our control." With guidance, they did lower their revenue and eps range "largely driven by the reduction in consumer confidence and consumer sentiment."

16) From Oxford Industries: "In December, we said that we were expecting a strong holiday selling season. That expectation turned into reality as the consumer did in fact show up to buy their loved ones and friends the gifts that they really wanted from the brands that they love...As we moved into January, we experienced a moderation in demand, which we attribute to the recent pattern of consumers retreating when there isn't a reason to spend, combined with a deterioration in consumer sentiment. As a result, January was not as strong as December, with comps down 3%. This negative trend accelerated in the beginning of fiscal 2025, with comps of negative 9% in February...We believe the choppiness in demand we experienced towards the end of fiscal 2024 is likely to continue in the near term."

17) From Paychex: "Turning to the macro environment, the pace of US job growth has moderated from the robust levels observed coming out of the pandemic but has been relatively stable during the past year and in line with historical averages. Our customer employment levels were a little softer than expected in the third quarter and likely impacted by weather related challenges and devastating fires in California, as well as lower bonus checks than last year and our expectations. Year-to-date, our checks per client have been flat compared to the prior year, suggesting relatively stable US labor market conditions."

18) From McCormick: "There is increasing consumer uncertainty and concern over returning to more inflation, and this has impacted consumer sentiment, particularly in the last month. This prolongs the consumer context of 2024, where consumers, especially lower income consumers, are more cautious, exhibiting more value seeking behavior and tightening their budgets as many are worried about the future, job security and rising costs. We are seeing this not just in the US but across our key markets."

19) From KB Homes: "Consumers are continuing to cope with affordability concerns and uncertainties around macroeconomic and geopolitical events. As a result, consumer confidence has declined sequentially each month for the past several months and homebuyers are moving more slowly in making their purchase decisions. While longer-term housing market conditions remain favorable, driven by demographics and an undersupply of homes, demand at the start of the spring selling season has been more muted than we have seen over the past few years. As a result of this softer selling environment, we are lowering our revenue guidance for fiscal 2025."

20) The March CPI in the city of Tokyo, which is a good read on the national number, was up 2.9% y/o/y, two tenths above the estimate with a 2.2% gain ex energy and food, 3 tenths higher than anticipated.

21) The March manufacturing and services composite index for Japan fell to 48.5 from 52 with continued softness in manufacturing at 48.3 vs 49 and a big drop in services to 49.5 from 53.7. Inflation pressures were apparent too as "cost pressures remained elevated in March, with overall input costs rising sharply across both monitored sectors, leading to a solid rise in selling prices. Strong inflation, coupled with concerns over labor shortages, an ageing population, subdued client spending and increased uncertainty over the international trade environment dampened optimism around the outlook. Notably, overall confidence regarding future business activity dipped to the lowest since August 2020 at the end of the first quarter."

22) German unemployment rose by 26k people in March and that was well above the estimate of up 10k. Their unemployment rate rose one tenth to 6.3% and that is just one tenth from matching the lockdown highs in 2020.

23) The March Eurozone Economic Confidence index which fell to 95.2 from 96.3 where there was an expected gain to 96.7. That's the lowest since December. Manufacturing confidence actually improved m/o/m but was offset by declines in services, retail and with consumer confidence.

Wolf Street howls about the Fed and inflation.

I am out of the balance of my Apple AAPL short at $218.31. 

With S&P cash -116 handles I added to my trading long rentals in SPY $555.54 and QQQ$468.43.

I added across the board (in a second buying tranche) in MSFT, GOOGL, META and AMZN.

The move in CoreWeave (CRWV) above its issue price (at $41 from below $38) is a likely positive (though not one person on Fin TV is mentioning this!).

I'm back buying JPM at $241.83 (I had sold higher into last week's rally).

I just moved to very small in my Apple AAPL short — covering most of my position at $218.19.

With S&P cash -111 handles I am taking trading LONG rentals in SPY $556.14 and QQQ $469.42.

I have been expecting a retest of the mid-March low in the S&P Index.

We are now about one percent above that, so that's close enough and "good enough for government work!" And a point in which I want to start buying for a trade. (I plan to have a scale lower from here).

Another factor contributing to my long rental is the clearing of the CoreWeave IPO, which opened at $39, or $1/share below its issue price.

On one of our investment shorts, Winnebago WGO:

Winnebago's FY25 selling season may be at risk, says Roth Roth MKM keeps a Neutral rating and $43 price target on Winnebago. The company's FY25 guidance cut reflects slow start to the selling season, and while Winnebago should be among the first OEMs to come out of the RV recession, the firm remains on the sidelines as the FY25 selling season could be at risk, the analyst tells investors in a research note.

Back in early March, I wrote the following, in which I said I expected we were on the path for a 10%-15% Decline in 2025:

"Since mid-February, equities have begun to roll over. This is consistent with my expectation that January 2025 may mark the top in equities, which have been led by large-cap tech and the Magnificent Seven — for the year. I see this phenomena as also analogous with the January 1973 peak in the broader market and the end to The Nifty Fifty leadership/dominance and cycle)."

Remember, we entered 2025 on a sugar high. Investor optimism abounded while a steady deterioration in domestic economic activity and stubborn inflation -- "slugflation" -- were ignored in the face of emerging animal spirits.

Importantly, the increase in interest rates and the decline in the corporate-profit outlook contributed to an ever-thinning but disregarded equity risk premium. The spread between the S&P 500 Index's forward-earnings yield and the 10-year Treasury yield recently reached a 23-year low. (What was initially seen as 14% S&P earnings per share growth (2025 over 2024) now appears to be only +7% to +8%). Check out the chart below:

Investors at the start of the year also paid no regard to questionable and unpredictable fiscal and monetary policies led to a herd-like FOMO (fear of missing out) and a continued and spirited climb in equity prices. These policy risks were put on the back burner as animal spirits were abetted by historically aggressive company buybacks -- over $1 trillion in 2024 -- and massive equity fund inflows (also over $1 trillion in 2024).

Valuations, which soared to an over 95%-tile by most traditional metrics and measures, were also ignored.

But Ignorance May Not Be Bliss

Historically, such a high cyclically adjusted price-to-earnings ratio multiple is a launching pad for inferior returns. Check out this chart of S&P 500 forward price-to-earnings ratios and subsequent returns over the decade following:

Source: J.P. Morgan Asset Management

Market Performance for 2025 Has Grown More Problematic and Cloudy

Thus far this year, the markets have conformed to most of the elements of my full year outlook.

Here were my baseline expectations as we entered this year (three months ago):

• The S&P Index will likely decline this year, with a small double-digit percentage drop as a base case.

• The upside of the S&P Index will be approximately +5%. (At its peak in late January, the senior Index was up by nearly +4.0%)

• The downside of the S&P Index will be about -10% to -15%. (The S&P Index is currently -3.5%).

• The S&P Index might make its yearly high during the first month of the year (January).

• Importantly, the league-leading Mag7 will likely begin a lengthy decline in January 2025 (similar to the top in the Nifty Fifty in January 1973). Here's what I wrote earlier on this topic:

• Looking at the near term, the recent low in the S&P Index from about a week ago would likely be followed by a three-to-six day contra rally that could fail (similar to 2018) at around the 200-day moving average:

• We see the overall decline in the S&P Index from January 2025 as likely to be characterized by a saw-toothed pattern (see my Diary entry in the TheStreet Pro) a slow but steady and undramatic fall.

So far, my 2025 forecasts seem to have been correct.

Stay tuned, fingers crossed. 

This commentary was orginally posted in Doug's Daily Diary on TheStreet Pro.

At the time of publication, Kass had no positions in any securities mentioned.

I am covering some MSTR at $297.50 (-$27).

With S&P cash -89 handles I am adding back ("baby steps") to the financials I sold (well) on the recent rally — BAC $41.32, C $70.23, WFC $70.23, MS $116.07, GS $543.98 and AXP $264.58.

Breadth, S&P 500 sector ETFs and Nasdaq 100 heat map:

With S&P cash -87 handles adding to AMZN $194.63, GOOGL $157.86, META $585.25 and MSFT $384.01.

Again adding to cannabis across the board - MSOS and individual stocks (TCNNF GTBIF and GLASF).

The gap higher (+$1.30) in TLT seems more a flight to quality than in a response to slowing economic data -- but I can't be sure.

I just took a quick profit (from yesterday) in TLT at $90.24.

I plan to buy back on weakness.

* So far my market expectations have been realized

"Since mid-February, equities have begun to roll over. This is consistent with my expectation that January 2025 may mark the top in equities, which have been led by large-cap tech and the Magnificent Seven — for the year. I see this phenomena as also analogous with the January 1973 peak in the broader market and the end to The Nifty Fifty leadership/dominance and cycle)."

- Kass Diary, Doug Kass: Market's on Path for 10%-15% Decline in 2025 - TheStreet Pro (March 5, 2025)

We entered 2025 on a sugar high.

Investor optimism abounded while a steady deterioration in domestic economic activity and stubborn inflation ("slugflation") were ignored.

Substantive Risks Have Been Ignored in the Face of an Emergence of Animal Spirits

Importantly, the increase in interest rates and the decline in the corporate profit outlook (what was initially seen as +14% S&P earnings per share growth (2025 over 2024) and now appears to be only +7% to +8%) contributed to an ever-thinning but disregarded equity risk premium — in which the spread between the S&P Index's forward earnings yield and the 10-year Treasury yield recently reached a 23-year low:

Investors also paid no regard to questionable and unpredictable fiscal and monetary policies, which were put on the back burner as animal spirits (abetted by historically aggressive company buybacks (over $1 trillion in 2024) and massive equity fund inflows (also over $1 trillion in 2024)) led to a herd-like FOMO (fear of missing out) and a continued and spirited climb in equity prices:

Valuations, which soared to an over 95%-tile by most traditional metrics and measures, were also ignored.

But Ignorance May Not Be Bliss

Historically, such a high cyclically adjusted price-to-earnings ratio multiple is a launching pad for inferior returns:

Source: J.P. Morgan Asset Management

The 2025 Market Performance Has Grown More Problematic and Cloudy

Thus far in 2025, the markets have conformed to most of the elements of my full year outlook.

Here were my baseline expectations as we entered this year (three months ago):

* The S&P Index will likely decline this year, with a small double-digit percentage drop as a base case.

* The upside of the S&P Index will be approximately +5%. (At its peak in late January, the senior Index was up by nearly +4.0%)

* The downside of the S&P Index will be about -10% to -15%. (The S&P Index is currently -3.5%).

* The S&P Index might make its yearly high during the first month of the year (January).

* Importantly, the league-leading Mag7 will likely begin a lengthy decline in January 2025 (similar to the top in the Nifty Fifty in January 1973)

Here's what I wrote earlier:

Kass: A January 2025 Market Top and the Beginning of the End of the Mag 7? - TheStreet Pro :

The conditions that exist today remind us of an important market top that took place in January 1973. Like 52 years ago, today we face a combative President (Nixon/Trump), market leadership is narrow (it was The Nifty Fifty in the early 1970s and The Magnificent Seven in recent years), interest rates and inflation have turned up (from the prior few decades) and public sector debt has been climbing rapidly. Also, like in 1973, we lack visibility today with regard to any fiscal discipline by our government.

In both periods, the forward price-to-earnings was extremely elevated (today, at 23x, in the 96%-tile), the market advance was not broadening out, the "animal spirits" took stock prices higher without a commensurate change in future profit forecasts, and the equity risk premium was paper thin.An epic market top was completed in January 1973 — leading to a poor year for the S&P Index, which marked the beginning of the end of the Nifty Fifty and several years of weak performance in the Indexes.I expect something similar in January 2025 — an important market top, a down year for the averages and marked by the beginning of the end of the Mag 7, which could extend multiple years.

* Looking at the near term, the recent low in the S&P Index (about a week ago) would likely be followed by a 3-6 day contra rally that could fail (similar to 2018) at around the 200-day moving average:

* We see the overall decline in the S&P Index from the January, 2025 as likely to be characterized by a saw-toothed pattern (see my Diary entry in the TheStreet Pro) a slow but steady and undramatic fall.

So far, my 2025 forecasts seem to have been correct.

Stay tuned, fingers crossed. 

From Bramo:

Upside:

-PRTG +153% (reports Promising Preclinical Results in Mesothelioma Supporting First-In-Human Trial of PORT-7)

-LXRX +95% (announces Exclusive License Agreement with Novo Nordisk for LX9851Lexicon eligible to receive up to $1.0B in upfront and development, regulatory and sales milestone payments)

-AGX +16% (earnings)

-TMC +15% (earnings)

-CVAC +14% (receives Positive Validity Decision from European Patent Office in Litigation against BioNTech SE)

-KULR +14% (earnings)

-IRIX +13% (earnings)

-BRZE +12% (earnings, guidance)

-HROW +11% (earnings, guidance)

-DLPN +9.4% (earnings)

-RKLB +9.2% (awarded partial share of $5.6B US Air Force contract from DoD)

-RNAZ +9.1% (announces Initial Dosing in Fourth Cohort of Phase 1 Clinical Trial with TTX-MC138)

-PRLD +8.5% (insider purchases)

-SNSE +7.9% (earnings)

-FGEN +6.7% (announces Publication of Results from Phase 1 Monotherapy Study of FG-3246 in Patients with Metastatic Castration-Resistant Prostate Cancer in the Journal of Clinical Oncology)

-TSSI +5.6% (earnings, guidance)

-SABR +5.5% (reportedly working with Evercore to divest Hospitality Software unit with an estimated value of $1B+)

-X +4.7% (reportedly in "active talks" with Nippon Steel about a deal that would maintain the $55/shr price and would secure additional funds towards legacy businesses)

-HUMA +4.5% (earnings)

-RACE +2.3% (broker upgrades following guidance)

Downside:

-MIST -61% (US FDA Issues Complete Response Letter for Etripamil for PSVT; Inspection required at a facility that performs release testing for etripamil)

-DRCT -37% (earnings, guidance)

-WOLF -30% (CEO announcement)

-ICU -15% (earnings)

-OXM -12% (earnings, guidance)

-LULU -11% (earnings, guidance)

-CODX -8.1% (earnings)

-PIII -6.4% (earnings, guidance)

-VTSI -5.5% (earnings)

-LDOS -2.3% (FEIM awarded Subcontract from Leidos to Develop Advanced Nitrogen Vacancy Diamond Magnetometer for DIU’s Transition Quantum Sensing Program)

Most active premarket exchange-traded funds at 8:29 a.m. ET. (SPY & QQQ not even in top 25)

From Peter Boockvar:

Why the recession risks are growing/All that glitters can also be silver/Retail slowdown/Overseas

I've argued for a while now that the US economy stands on just 3 pillars. One being upper income spending, particularly on travel/leisure, and benefiting from higher stock and home prices. Second, anything related to the AI CapEx spend and Gen AI buildout, whether via chips, servers, data center buildouts, electricity grid, etc...Third, government spending with a budget deficit as a % of GDP near 7%, more than double where it should be. This fiscal blow out has also been a major factor in corporate earnings growth and profit margin expansion over the last few years. IRA, Chips Act, healthcare, transfer payments, etc...all flow dollars into the private sector.

Weakness continues to be seen with manufacturing, whose recession is now past 2 years and tariffs are only going to make this worse if 2018-2019 is any precedent. The pace of existing home sales remains around 30 year lows and thus is a drag on anything related to housing turnover. Lower to middle income spenders are clearly seeking value and spending less as we've heard a million times from a variety of retailers and Lululemon, Winnebago and Oxford Industries reminded us again last night. Capital spending ex AI has been essentially flat lining for the past 2 years. Global trade, outside of the pull forward ahead of tariffs, has been muted. And, the all in U6 unemployment rate is now at the highest level since October 2021 as seen with the February BLS data.

Now, there is a clear attempt to both cut outright federal government spending in certain areas, particularly with personnel and to slow the pace of spend elsewhere such as in defense and Medicaid. I applaud this for the long term but there is no avoiding the short term negative impact. With the GenAI ecosystem CapEx, risks are only going to grow that the pace of spend will slow here too, especially post the DeepSeek news and the stocks involved in this space clearly reflect the worries. Lastly, the stock market for the first time in a few years is experiencing some shakier legs and if this continues, if the pullback becomes something more, especially if the AI tech trade continues to falter, you can be sure that upper income spending will slow down. You cannot separate asset prices and high end consumer spend with about 50% of the latter coming from about 10% of the upper income earners.

Bottom line, the rising risk of recession is real and unless something replaces the above economic strengths, I don't see how we can't be worried and on the lookout.

We've seen copper rise to a record high before pulling back yesterday and today and silver today is teasing the highest level since 2012. We remain bullish and long silver which remains 30% below its record high in 2011 and 1980 of around $50 per ounce. The unique aspect of silver is that about half the demand is industrial but it still remains a monetary metal that follows the price of gold, which is at a fresh record high today above $3,100.

Silver

From Lululemon whose stock is down more than 10% this morning:

"As you have seen, we started this year with several compelling new product launches, but we also believe the dynamic macro environment has contributed to a more cautious consumer. In fact, based on a survey we conducted earlier this month in conjunction with Ipsos, consumers are spending less due to increased concerns about inflation and the economy. This is manifesting itself into slower traffic across the industry in the US in quarter one, which we are experiencing in our business as well."

From Winnebago whose stock jumped 8% yesterday as earnings were better than feared and off a 52 week low:

"As expected, soft retail and growing macroeconomic uncertainty continue to create a challenging sales environment across the outdoor recreation industry in our second quarter. Consequently, we remain intently focused on the factors in our control." A common theme for many businesses right now on the execution side.

With guidance, they did lower their revenue and eps range "largely driven by the reduction in consumer confidence and consumer sentiment."

From Oxford Industries:

"In December, we said that we were expecting a strong holiday selling season. That expectation turned into reality as the consumer did in fact show up to buy their loved ones and friends the gifts that they really wanted from the brands that they love...As we moved into January, we experienced a moderation in demand, which we attribute to the recent pattern of consumers retreating when there isn't a reason to spend, combined with a deterioration in consumer sentiment. As a result, January was not as strong as December, with comps down 3%."

"This negative trend accelerated in the beginning of fiscal 2025, with comps of negative 9% in February...We believe the choppiness in demand we experienced towards the end of fiscal 2024 is likely to continue in the near term."

Apartment List released its National Report for March and said its new rent index rose .6% m/o/m, up for a 2nd month and helped by seasonality. The index though is still down .4% y/o/y "but is slowly inching back toward positive territory." The supply side continues to be the issue with rent growth, particularly in the Sunbelt states with the vacancy rate rising to 6.9%, up one tenth m/o/m. Austin is the softest market. They said "2024 saw the most new apartment completions since the mid-1908s, and with 750k units still in the construction pipeline, the supply boom has runway to continue this year." I expect a strong drop off thereafter in new multi family construction.

Rent growth in the government inflation stats should continue to slow this year but I'll say again, the CPI and PCE figures never captured the double digit gains seen in rents in 2021/2022.

The March CPI in the city of Tokyo, which is a good read on the national number, was up 2.9% y/o/y, two tenths above the estimate with a 2.2% gain ex energy and food, 3 tenths higher than anticipated. Nothing good for the BoJ with its overnight rate at just .50%. JGB yields though did fall on the economic growth worry with its auto sector but the yen is stronger as was the Nikkei. Also, the minutes from the March BoJ meeting came out and members expressed global trade worries.

France and Spain released its preliminary March CPI figures and they were both less than expected.

German unemployment rose by 26k people in March and that was well above the estimate of up 10k. Their unemployment rate rose one tenth to 6.3% and that is just one tenth from matching the lockdown highs in 2020. The hope of course is that this is old news with the fiscal spend lift that is about to happen, Keynes style.

Also out was the March Eurozone Economic Confidence index which fell to 95.2 from 96.3 where there was an expected gain to 96.7. That's the lowest since December. Manufacturing confidence actually improved m/o/m but was offset by declines in services, retail and with consumer confidence.

On the softer inflation and economic data, European bonds are rallying and the euro is down a touch. Most bourses in Europe are weaker too.

The UK had good news with its February retail sales data which rose 1% m/o/m ex auto fuel, well better than the estimate of down .5%, partly offset by a 5 tenths downward revision to January. The growth was broad based. Keep in mind that while inflation is still a problem in the UK, strong wage growth has offset this and more.

German Unemployment Rate

Premarket percentage movers at 8:12 a.m. ET:

* Issue #86!

Apparently the CoreWeave IPO got done.

The deal was substantially downsized, and the IPO price also lowered.

What was meant to be a positive catalyst for the industry has probably turned into a massive negative, even though the deal was done.

Had it not been for Nvidia NVDA stepping in, and effectively once again funding their own customer, it might not have been done.

Regardless, this deal exposed for all to see just how poor the economics for this ecosystem are. It should have been obvious, based on the rates the LLMs like Open AI were burning through cash. Although it was relatively public how much money they needed to keep raising, since they were private, those with very opaque rose-colored glasses could look past it.

Now that CoreWeave’s financials are laid bare for everyone to see, irrespective of all the accounting gimmickry highlighted in the prior "More Tales" (like leaving depreciation out of COGS and lengthening their depreciation schedule), it should be clear just how dis-economic the ecosystem is.

The fact that this massive amount of money losing in order to produce output that in many cases is less than useless generated so much hype to begin with, might go down in history as dumber than tulips.

Just read the cautious 86 individual "More Tales From Nvidia" columns that I have written since June 2024 that chronicle my skeptical views of the deteriorating AI ecosytem!

I call BS to the "dry powder" and "cash on the sidelines" argument:

A conservative argues to downgrade marijuana to a Schedule III drug | Column

This table is a valuable resource for momentum-based short-term traders:

From JPMorgan:

Futs are lower; NDX is lagging. Pre-Market, Mag 7 are mostly lower: AAPL -0.7%, AMZN -0.5%, while TSLA +1.6%. Bond yields are lower; USD is flat. Commodities are mixed with base metals all lower this morning. Today, the key focus will be PCE: Feroli estimates core PCE to print +0.34% MoM vs. 0.3% survey vs. 0.3% prior. On YoY basis, he expects core PCE to print 2.7% vs. 2.6% prior, also in line with the Street.

and...

EQUITY AND MACRO NARRATIVE: Trump’s auto tariffs announced Wednesday night led to a sharp selloff yesterday morning, but we saw some recovery later in the day that eased half of the pre-market losses. While investors seems to higher tolerance on policy surprises, the details of the tariff announcement suggests much higher costs for the industry than the previous proposal (see below for the industry / economic impacts).

Bonus  —Here are some great links:

A Weak Bounce

Precious Metals Breakout

America Is Down But Not Out

Markets Don't Like Volatility

Country ETF Dividends

Wolf Street howls about the fiscal mess. 

The S&P Short Range Oscillator rose to 2.06% from 1.20% — ergo, it is increasingly overbought.