Markets Still Showing No Recession In Sight

1) RECESSION – Lots of people think that without a handful of AI stocks, we’d already be in a recession. What exactly is an “AI stock”? If a company uses AI, benefits from AI, talks about AI on earnings calls, or sells products to companies using AI…does that make it an AI stock? I honestly don’t know anymore. What I do know is that we have actual data. Thousands of stocks worth of data. And when I look underneath the surface of this market, I’m not seeing a tiny group of stocks dragging everything higher while the rest of the market falls apart. We continue to see the opposite. The Russell 3000 Index represents roughly 98% of the entire investable U.S. stock market. Inside that index are about 3,000 publicly traded companies. Everything from the mega-cap household names everybody talks about, all the way down to the smaller companies most investors have never heard of. And two-thirds of that index is made up of small caps. That’s the Russell 2000. These are the smaller businesses. Regional banks. Industrial companies. Retailers. Energy names. Healthcare companies. Local businesses most people don’t associate with “AI” at all. What’s that index doing? New highs. That’s not a “few stocks” carrying this market. When an index representing two-thirds of the stock market is making fresh all-time highs, we probably don’t have a participation problem. So right now we have the S&P 500, Nasdaq 100, small caps, and mid-caps all at new highs. That’s broad participation and expanding breadth and NOT indicative of a recession.

2) OIL – Oil prices continue to fool around within the TREND ($86-$95), with WTI currently trading at $97.78. A break below $86 would move oil into a bearish (downward bias) trend. Oil is currently down from a high of $118, yet gas prices are still elevated. Why? Supply. U.S. gasoline stocks are at their lowest seasonal level for more than a decade. We've seen 11 straight weeks of decline, and the levels are about 4% below the five-year average. The challenge is that summer driving hasn't quite begun yet. With peak demand expected in about two weeks, the U.S. is entering this busy season with the thinnest inventory buffer we've had in over ten years. That said, high prices could definitely impact demand.

3) VIX – We have OPEX (option expiration) pending on Friday with U.S. equity volatility still very muted. That OPEX could generate some volatility, but the positive gamma creates the space for volatility control funds and systematics to buy the dips. A spike toward 18 probably brings in a dip for those large buyers.