"This morning's data confirms our view that the economy continues to slow on a trending basis and is set up to slow fairly sharply here in Q2," Hedgeye Senior Macro analyst Darius Dale wrote earlier this morning.
Here's more analysis from our Macro team in a note sent to subscribers earlier this morning:
"Since the late-September lows, the S&P 500 has held a reasonably tight positive 0.75 correlation with the Citi U.S. Economic Surprise Index, which itself has rallied hard off it's early-February lows as U.S. economic data stabilized in rate-of-change terms and perpetuated a waning of recession fears.
Now, a topping process in the latter index appears to have gotten underway over the past two weeks, as most recently highlighted by this morning's meaningful misses in the Chicago Fed National Activity Index and the Philly Fed Business Outlook Survey. We reiterate our view that [pending] dour economic data itself is the catalyst for the market to decline from here."
Digging deeper into the data...
As you can see below in the "high-frequency" data series that we track for the U.S. economy, many of these indicators stabilized on a sequential (month-over-month) basis but are in the red versus their 3-month average:
Click image below to enlarge
As Dale points out, dovish Fed commentary can't add much more juice to the markets. The most recent read on implied yield on Fed Fund futures suggests investors don't see a rate hike until December 2017.
"There's no more juice left to squeeze out of rates markets w/ dovish talk," Dale writes. "She actually has to do QE4 to get rates spreads to compress further from here. QE4 before the crash?"
Yet more reasons why we're holding the line on our bearish views.
Watch Dale in the video below, "U.S. Economy Enters Most Difficult Part of Cycle":