Equity Markets: Correction or Recession?

Since mid-February, we’ve seen a 10% correction in the S&P 500, pushing U.S. equities into negative territory for the year. Historically, a 10% drop is normal in non-recessionary environments. But if you’re anticipating a recession, 30-50% drawdowns are historically more common.

Key Takeaway:

Credit markets are stable, suggesting no recession yet. The high-yield ETF market is calm, and that’s usually where the Fed steps in—not just when stocks fall.

🌍 Asset Performance Year-to-Date (YTD)

• U.S. Equities
  • NASDAQ: -8%
  • Russell 2000: -8%
  • S&P 500: -4%
• Europe (Stock 600): +7% to +10%
  • Boosted by Germany’s €500B fiscal stimulus over the next 10 years.
• Gold: Above $3,000, strong risk-off asset.
• Cryptos (BTC): -10% YTD
• Oil (WTI): Down 6%, trading $65–$70
• U.S. Dollar: Weaker by 4-5%, aiding U.S. exports.

  

   

🏭 Sector Trends: Winners & Losers

Winners:

• Metals & Mining
• Semiconductors: Up last week

Losers:

• Airlines, Retail, Transportation: Reflecting consumer spending fears.
• Homebuilders: Signaling caution about economic cycle.
• Tesla & Discretionary Stocks: Still under pressure.

Utilities and Consumer Staples: Holding steady, reflecting defensive positioning.

📊 Bond Markets & Rate Watch

• U.S. 10-Year Yield: Trading between 4.2% and 4.7%
• Rising debt issuance = higher yields due to supply glut.
• European Yields: Climbing post-German stimulus; raises questions about ROI in France, Spain, Italy.

🏦 Fed Watch: All Eyes on FOMC

• Wednesday’s Meeting: No rate changes expected.

  

   

• Markets are pricing in ~2.5 cuts by December.

Volatility (VIX):

• Dropped from 27% to 22%—but beware, vol can spike fast.
• High volatility complicates downside trade setups.

📈 Technical Levels & Option Flows

S&P 500 & NASDAQ: Broke trend channels—potential bear traps with FOMC & options expiry ahead.

JP Morgan Collar Option Structure:

• Massive influence at S&P 5565 level.
• Market gravitating toward this strike due to large open interest (~36,000 contracts).

  

   

📰 Macro Highlights

• CPI/PPI Data: Core CPI lower than expected—Fed-friendly.
• Retail Momentum: Friday’s rally shows retail isn’t dead; momentum stocks surged.
• Hedge Fund De-Grossing: Firms like Citadel & Millennium sold big names after poor performance.

🔮 Key Catalysts This Week

• Monday: U.S. Retail Sales – Key for GDP outlook.
• Wednesday: FOMC Meeting – Watch the press conference.
• Friday: Options Expiry & Index Rebalancing – Expect volume & volatility.

Earnings Watch:

• Accenture, FedEx, and all eyes on NVIDIA’s CEO Jensen Huang Tuesday 1PM ET.

  

   

📊 Volatility Snapshot

• 1-week S&P Straddle: Implied move ±2.4%
  • Last week: ±2.6%
  • Realized move: ~4%

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Greg
📩 Contact: greg@duponttrading.com