$7.2 Trillion on the Sidelines – The Real Story the Headlines Are Missing
POSTED BY: VANCE HOWARD
The markets have firmed up and we are now testing resistance in the 5500 area on the S&P 500. The index is overbought on a short-term basis, and we think a pullback is highly probable. We did have a breakout from a downward trendline, so there is reason to be encouraged. Technology has traded much better in the last few days. Was April 7th the bottom or is this just a short-term bounce? Could we see a V bottom? We are not sure, but the market is starting to trade in a more controlled manner.
Being patient is a good idea at this time. Remember General Custer at the Little Bighorn? He was the first one out and the first one with arrows in his back. There is still a lot of road left in 2025, and unlike most of the news coverage I’m just not that bearish. We keep hearing about a recession and empty shelves. I’m not in that camp, and firmly believe we could still see a way to a nice profitable year, possibly as high as 6500 on the S&P 500.
Money markets have grown to 7.2 trillion dollars, as shown by the Federal Reserve (FRED). This is an amazing cash build-up and any drop in rates should see this cash move to other areas, such as stocks, bonds, and real estate.
Atlassian Corp (TEAM) looks to be ready to move up along with Salesforce (CRM). After a large selloff the last two months, they have both firmed up and it looks like the worst is behind both stocks from a technical standpoint.
The Reuters/University of Michigan Consumer Sentiment Index was up 1.4 points from its preliminary April estimate to a better-than-expected 52.2. But it was still down 4.8 points for the full month and logged in its lowest level since mid-2022. Prior to that, sentiment had only been lower in May 1980. It implies a pullback in consumer spending which is a downside risk to the outlook for growth this year.
Inflation expectations ebbed slightly from the preliminary estimate but were still much higher than in the prior month, driven by the anticipated impact of tariffs. The one-year ahead inflation outlook was at 6.5% this month, the highest level since 1981, and has surged from 2.8% at the end of last year. The five-year inflation outlook was at 4.4%, the highest level since 1991, and jumped from 3.0% at the end of 2024.
