The Narratives Are Wrong

1) USD – The US Dollar is still signaling a bearish TREND with the low end of its TREND range at 98.82.  So far, we keep seeing the Dollar's lower lows and highs within this bearish (downward bias) TREND.  What changes that?  If something changes the probabilities of Fed rate cuts.  What are the catalysts for that?  Stronger employment and stronger ISM data (coming out later today) are a couple.  That said, the data still suggests that we see weakening employment alongside accelerating growth.  We’ll see how the USD acts around that 98.82 level, but so far this AM it has turned down after hitting 98.50.

2) CREDIT – Whatever happened to the “Private Credit Crisis Coming” in 2025?  Well, that narrative isn’t likely to be a “thing” with High Yield bonds headed toward new all-time highs, along with the 10yr BBB Spread (junk bonds) collapsing toward new Cycle Lows.  Who does that tend to benefit a lot?  Regional Banks.

3) BUBBLE – There is a lot of consternation about the “AI Bubble” and the coming crash.  First, the louder the mainstream cries “crash,” the less and less likely it's near.  People want to make constant comparisons to the late-90s tech bubble.  But objectively, this market looks nothing like 1999.  1. Valuations aren't even close.  The US tech sector (XLY) is up 23% over the past year.  During 1999, XLK was up more than 65%.  2. Market concentration is improving.  The gap between the top 5 stocks and the rest of the S&P 500 is near its narrowest level of the past decade.  3. The P/E ratios aren't inflated yet.  If the market were in a bubble, the P/E ratio relative to the broader market would be much higher, as it was in 1999 at 260%.  But currently, the P/E ratio is roughly average at 130%. Anything above 170% would be considered "bubble territory."  Bottom line: The data doesn't suggest real bubble conditions yet.