Closing Thoughts for the Week

The markets are starting to shed their risk-off sentiment and become at least more neutral in the near-term. The movement, however, is benefiting cyclicals, not growth. The economic data showed modest improvements last week. The Fed held rates steady as expected, choosing to continue taking a wait-and-see approach. The decision to slow QT suggests they believe that the economy is going to need more liquidity.

The only consistent theme from this week was volatility. As long as conditions remain volatile, including both the highs and lows, the market remains at risk. The big tell of whether or not we’re exiting this higher volatility is in high yield spreads. A normalization is long overdue and a resetting of spreads could indicate that risk-off is still in control even as stocks are rising.

DOGE could slow the labor market, but it wasn’t likely to wreck it. Tariff whiplash is clearly creating havoc on the financial markets. The constant stop/start/delay/exempt tactic of the White House that changes the narrative on almost a daily basis is difficult to keep up with. The Fed looks like it’s preparing itself to fall behind the curve again.