Maybe it’s a healthy correction

Good day. A terrible survey of consumption feelings of Michigan landed on Friday morning, showing restlessness about the economy of households through income levels. But the market increased strongly anyway, since it was clear that the United States government did not close. Are you jumping again? Or by fading the rally? Send us an email: Robert.armstrong@ft.com and aiden.reiter@ft.com.

Actions: the first will be the last

Since the stock market turned south about a month ago, there has been a notable investment in which the shares work relatively well and that they are working relatively bad.

The fifty actions of worse performance in the S&P 500 since February 19 have an average total return of 22 percent negative (that is an average equal weighting, not weighted in capital, so not only captures the movements in some huge actions). Those same fifty actions served incredibly well in the previous rally, which began in October 2023 and ended last month: they returned, on average, 103 percent during that period.

Meanwhile, the fifty better The realization of actions in the S&P during the last month has increased, on average, 11 percent. That is a little more than 9 percent those same actions returned during the last rally.

Below the point is represented graphically. The clear blue columns represent the stocks that have done well in the last month; The big losers are in dark blue. Yesterday’s winners are hiding absolutely, while the actions they simply provided in the last rally have worked well.

What this suggests to the non -sent is that what we are seeing is not so much a sale of panic risks in all its forms, since investors are blocked in the profits where they have obtained huge profits.

Each sales sale is a reversal in market leadership, to a greater or lesser extent, since investors sell growth and cyclicity and buy stability and tear. And it is true that the worse actions in the last month are very inclined to the discretionary actions of the consumer, while the best leans towards medical care, basic products, insurance and defense actions. But the change is more violent than, for example, the investment of 2022. Perhaps this is due to the fact that the last rally concentrated so closely on information technology, that it has worked abysmally in the last month.

These observations are certainly anecdotal instead of scientists. But provided that the mass sale seems to be dominated by the taking of profits in actions that have increased wildly in recent years, a healthy correction can be plausibly called in what was (and mostly remains) a fairly expensive market. If the mass sale continues and expands, on the other hand, it will look more like a general flight from the risk: a bearish market.

The dollar: stuck between lower growth and greater inflation

The dollar has fallen hard since its great career before and immediately after the presidential elections. In the first week of March, he took a great result for the fear of a deceleration of the United States:

But, curiously, the dollar was more or less flat during the chaos of the shares market last week. This, in the face, is curious: the fall of the market last week seems to have been mainly of concerns about the weakening of economic growth, which, all the same, would drag the lowest dollar. He failed on Monday, but the dollar ended the week near where it began:

The increase in the dollar around the elections, such as the capital rally, reflected the expectations that Trump’s policies would increase both growth and inflation. That narrative turns out to have been exaggerated. At the end of last year, the Fed pointed out in its cutting cycle, while other central banks seemed to continue lowering their own rates, which suggests that the differential rate between the US. UU. And other countries would remain wide, which supports the green back. We also obtained a couple of hot economic readings, which suggests that the Fed could even increase Rates. The GDP of the fourth quarter was robust. Inflation readings in November, December and January were on the side. The dollar reached its highest level after a particularly strong job report, not when Trump was chosen in November or announced tariffs later in January.

Autumn at the beginning of this month was partly due to the hope of investors to see Trump policies friendly with growth, but they were also the investors that marked growth expectations as the data cooled. There was also an external factor: the euro increased, after a change in the fiscal policy of Sedan.

The tranquility in dollars last week, in relation to stormy shares, could demonstrate that it is a more sensitive and timely meter of tariff policy. Currency markets have reflected tariff uncertainty faster than capital markets from the inauguration. The falling of the stock market last week could have been the actions that were up to date with the previous weakness of the dollar, about the expectations of a deceleration of the USA. UU.

But the relative calm of last week could reflect that recent data has been a wash for the dollar. Currently, the market not only cares about weaker growth in the US. While the fears of the deceleration suggest a weaker dollar, the hottest inflation suggests a stronger green back. We are still waiting for a tougher evidence of a slowdown. And the inflation data we received last week were not conclusive. CPI and PPI came cooler than expected, which suggests a weaker dollar. But both measures also pointed out that PCE, the inflation measured by the Fed, could be hotter at the end of this month. The fixed income markets were more or less static last week, since bond merchants waited for the IPC/PPI data, which naturally restricted the dollar. Fixed income markets can also be silenced in the future, since investors wait for PCE to judge the direction of inflation.

It is tempting to argue that the dollar did not fall next to the shares due to the “smile in dollars”, the trend of the dollar to strengthen in times of coercion of the market. But, as James Reilly points out in Economics Capital, that does not seem to be the case; Other safe shelter coins, particularly the Swiss Franco and Japanese Yen, did not join last week, suggesting that there has not been a flight to stable coins.

Until we obtain a stronger evidence of a deceleration or a better indication of where inflation is directed, we could see a fixed dollar, despite the potential volatility in capital markets. Other currencies, however, are still moving around tariff fears. Both the Canadian dollar and the Mexican peso won against the US dollar last week. The Canadian dollar is now quoted in which it began before Trump announced tariffs in Canada, and the Mexican peso has strengthened:

This could reflect relative optimism for Mexico’s perspective, since it seems that Trump is more established in punishing Canada. But it is difficult to draw real conclusions: nobody knows what Trump will do. The coins have been the best indicators of tariff policies so far this year. However, with both round trip in the last three weeks, maybe that is no longer the case.

(I reiterate)

A good reading

A choice.