The concerns around recession, inflation, and the Fed frame WHERE...

The concerns around recession, inflation, and the Fed frame WHERE equities are going on a cyclical basis.

The key is aligning the structural macro drivers with cyclical changes and then executing trades when positioning is offside.

Let's break each of these down (Pt1) 🧵👇

On a structural basis, delinquencies remain VERY LOW which is why equities continue to shake off drawdowns. Underlying growth in the economy continues to rise and we aren't seeing signs of a recession comparable to a 2008 regime.

When you are in a period of low delinquencies like this, it provides massive support to the cash flows of equities

Earnings continue to surprise to the upside across broad sectors and analysts expectations slowly rise as in most bull markets.

Underlying growth remains supportive but a lot of people think that the higher rates are going to begin pulling equities down. This is NOT the case right now. Inflation isn't accelerating in a manner comparable to 2022.

Valuations are marginally elevated BUT we aren't seeing a driver that would pull equities down.

On top of this, growth is making a massive move up right now in the Atlanta Fed and Bloomberg nowcasts which means we have a decent margin to justify these valuations post the recession pricing earlier this year.

All of this begs the question, ok WHERE are we going now and HOW should we think about the risk-reward of specific things like ES (S&P500 futures contract) and RTY (Russell 2000 futures contract)?

Everyone is overly focused on tariffs and Trump headlines but the more important signal to watch is that we are functionally in the middle of the road with market breadth. 53% of stocks are above a 200DMA which means we aren't even in a full bull market meltup yet.

Notice that ES continues to show significant bullish momentum as more and more positive information gets priced in. If ES was continually fading on these news events then it would cause concern but the trade deal news that had the final bullish gap was at the 5758 level and the NFP and CPI print continue to show buying pressure at the 6000 level as macro hedges are unwound.

The main idea is that the current macro regime in markets is skewing equities to the upside on a structural basis as cyclical factors are pushing equities higher as well. SHort term technical levels and hedging pressure continue to show the SAME dynamic as well.

The implication is that growth and inflation are pushing equities higher and a recession ISN'T in the cards right now.

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The Russell is showing the same dynamic except with wider ranges. The Russell tested the gap up level from positive trade news but then mean reverted back up. The Russell actually outperformed ES for multiple days and through the CPI print.

Why? Because when growth is accelerating like this, small caps outperform

This is why ETFs like ARKK are pushing higher:

And why BTC is likely to push higher as it remains ABOVE 100k:

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The main ideas to take away from this:
- The structural macro regime is skewing equities to the upside.
- Short term impulses are likely to support equities for a push to all time highs
- Hedging pressure through NFP and CPI as well as trade news continue to show levels of significant support in equities.
- Positioning shows people are still underexposed in equities. Running longs for a break to all-time highs remains the highest risk reward in ES

When these factors shift again, they will catch people offsides which is why monitoring them constantly is key. I laid out the framework for thinking about these tensions further in this report:
x.com/Globalflows/st…

I will be expanding on the equity side further in a part 2🧵 drilling down into specific equity sectors and WHY specific sectors are outperforming/underperforming in the current regime

If any of these ideas are new to you, check out the free educational primers on macro and markets here: x.com/Globalflows/st…