No Problem?
The stock market has been fading a bit, of late but is still only about 3% off highs. In theory, some positive war or tariff headline could send us near highs but then again, negative headlines can send us down. It's a real generalization, but most of the time, heading into Options Expiration (OpEx) is supportive of the market, then a window of weakness develops after hedging flows disappear.
Along those lines, the economic data hasn't been great of late, as can be seen with the Bloomberg Economic Surprise Index, below.
The most concerning part of that decline is the softening in the jobs market, with Continuing Claims shown below. To be clear, employment still looks good, it's just that the slow-motion worsening trend is finally approaching levels that deserve some attention. All Fed districts have cited lower labor demand, and that's probably contributing to the rise in credit delinquencies. We're still far from trouble but starting to see the leading edge of stains in the leading edge of economic trouble.
Hopefully this gives more context for why I remain cautious, here. We're not in trouble yet, but with supportive options flows gone and the economy edging towards trouble, I think this is a lousy time to take risk. To be clear, I acknowledge that the S&P 500 is basically flat over the last month while the risky and speculative ARKK funds is up almost 18%. I haven't participated in that, which was wrong, but this strikes me as a lousy time to chase.
Along those lines, the US bombed three Iranian nuclear facilities on Saturday. Current indications have the market down about a percent on the news. Will we see continued downward pressure? That's been hard to get for a while, but more news will come, including tariff talk deadlines, which don't seem to be going particularly well. I'm not willing to guarantee downside but I'm comfortable remaining hedged, here. That said, there was some amount of market hedging activity into the weekend, which helps cushion the blow.
As long as the economy stays reasonably strong, it's hard to get too negative. It's too early to get concerned but with the leading edge of trouble showing up, it's getting harder to buy speculative growth names, at least on a longer horizon. Post OpEx weakness doesn't have to happen but is opens up a better chance of weakness than we've had for a while. We'll see what next week brings.