Week of Mar 23 2025

The week's economic data presented contrasts between resilience and weakness. While Monday's retail sales showed headline weakness, the control group demonstrated surprising strength (+1.0%). Yardeni Research noted the Coincident Economic Indicators Index reached a record high, yet forward-looking indicators revealed troubling trends, with new orders expectations falling to their lowest since May 2023. The Atlanta Fed's GDPNow estimate stands at -2.1% for Q1, while DataTrek's Walmart signal suggests 78% recession odds, challenging consensus growth projections. The Bank of America Global Fund Manager Survey revealed the second-largest monthly sentiment decline since 1994, with 64% of managers expecting a weaker global economy. Corporate earnings have remained robust according to the LSEG Earnings Scorecard, with Q4 2024 delivering earnings growth of 17.1%, significantly outpacing earlier estimates of 9.6%. The scorecard projects earnings growth moderating in Q1 2025 to 7.7% before reaccelerating throughout the year. The strongest sectors include Financials (+35.1%), Communication Services (+31.5%), and Consumer Discretionary (+27.4%), providing fundamental support for equity valuations despite tariff-related uncertainties.

From a technical perspective, several key thresholds warrant close attention: The S&P 500's 200-day moving average at approximately 5740 serves as crucial resistance, while 5539 (March 13 low) and 5500 represent significant support. Morgan Stanley identifies 5500 as a pivotal threshold – a break below would signal deeper deterioration and potentially trigger their bear case target of 4600. Goldman Sachs' options data shows significant concentration around the 5675 level, creating potential "pinning" effects during Friday's large options expiration (with $4.7 trillion notional value expiring). And finally, the 10-year Treasury yield is testing its 200-day moving average, with a break lower potentially signaling acceleration of recession concerns.

The left-tail risk scenario envisions intensifying stagflationary pressures as the April 2 tariff announcement triggers foreign investor withdrawals and compounds growth concerns. Under this scenario, sticky inflation amid slowing growth would limit Fed accommodation, potentially pushing the S&P 500 toward Morgan Stanley's 4600 bear case. Reciprocal tariffs might "infect global data," creating systemic risks beyond U.S. markets and transforming this correction into a sustained bearish trend. The right-tail scenario depends on tariffs proving transitory as Powell suggested, with minimal impact on growth and inflation expectations. Here, strong corporate earnings could reassert themselves, backed by a potential Fed pivot, driving the S&P 500 toward Goldman's 6200 target or Morgan Stanley's 6500 year-end projection. Extreme bearish sentiment readings (II bull/bear ratio at 0.80, AAII at 0.32) provide contrarian support, especially if April's tariff announcement brings clarity rather than escalation.

The SPX enters Week 13 at a crossroads, balancing robust earnings against stagflationary pressures and tariff uncertainty. The "spot down/vol down" anomaly and extreme bearish sentiment hint at potential upside surprises, but a break below 5500 could accelerate recession fears. Monday features S&P manufacturing and service sector PMIs, followed by Tuesday's housing data (new home sales, building permits, and FHFA house prices). Wednesday brings UK Chancellor Reeves's Spring Statement and U.S. durable goods orders. Thursday features pending home sales, while Friday's personal income and spending report (including PCE inflation) offers crucial inflation insights before the April 2 tariff outcome. March European inflation estimates (Friday) will provide context for global monetary policy divergence.