Does Stock Market Expect a Rate Cut

What’s Consumers’ Staying Power?

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  • On Sunday and Tuesday, we opened a discussion of recession issues. 

  • Yesterday, the GDP release showed that the US is in recession, as GDP came at -0.3%. What a coincidence!?

  • At the same time, the GDP Price Index came at 3.7% vs the estimated 3.1%.

  • Stagflation, anyone?

  • Personal consumption dropped from 2.7% to 1.2.

  • The chart below shows the GDP’s gory details.

Consumer State – What Are Companies Saying?

  • On Sunday, I posted a chart of Starbucks' year-over-year same-store sales going negative, which usually happens just before recessions.

  • Chipotle reported its first decline in same-store sales since 2020, citing consumers' cutting spending due to economic uncertainty.

  • PepsiCo cut its earnings per share forecast for the entire year amidst heightened economic uncertainty. The company’s CFO noted consumers were even pulling back on buying snacks.

  • And the big one: Walmart’s CEO noted that “budget-pressured” consumers were exhibiting “stressed behaviors” due to money running out before the end of the month.

  • This is a good indication, among others, that the economy is going into recession.

  • And the market is showing strength. How do you explain this?

  • Granted, the stock market declined sharply into early April, and some may argue that the market already discounted recession. But wait, was it not the decline because of tariffs?

  • Others may speculate that things will get so bad that the FED will cut rates and print money, and the stock market smells that.

  • Someone like me may say that cycles and Elliott Wave analysis predicted both the decline and rebound, which our analysis did, as recorded in the newsletters.

  • I will stick with my technical analysis predictions, but that does not mean I will ignore significant fundamental news developments.

Consumer – Personal Interest Payments

  • Chart 4, which I derived from data in Charts 1-3, shows the percentage of earnings (CPI adjusted) to cover interest payments just before the last four recessions and now.

  • The first thing to observe is that this percentage has been growing over the last 35 years, which means that the consumer is more credit/debt dependent now than in the past.

  • Before the last two recessions, interest payments represented 14.1% of earnings, while in Q1’25 they represented 21.6%.

  • This means that the interest payment burden increased >50%.

  • Can the consumer sustain this burden without cutting on purchases?

  • Apparently not, according to major consumer-oriented companies above.

Sentiment & Technical Analysis

  • The CNN’s Fear & Greed Index declined slightly to 35, still in the Fear range.

  • SPX continues to print bullish candles after a doji candle hesitation on Monday.

  • This aligns with the McClellan Summation Index on the buy signal we reported several days ago.

  • After -0.3% GDP print in the pre-market, SPX dropped to the 10D EMA and bounced strongly, coincidentally with the release of tame PCE (FED’s favorite) at 10 am.

  • SPX closed the gap. 

  • The 50D MA is just above it.

  • These could provide an excuse to pull back, but SPX probably has more bullish fuel for May.

  • Also, do not forget that the beginning of May has bullish seasonality, because of the pension funds inflows.

BraVoCycles on X

  • Consider following me on X (former Twitter) in addition to the newsletter, as I often post valuable information there in real time between the newsletters.

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