American Exceptionalism/ SCOTUS Risk/ Death Cross/ Differentiated Metrics/ 2 Final Thoughts
American Exceptionalism
Plenty to unpack this week.
Let’s take a step back and look at some basic charts.
Gold
Breaking out and all-time highs in $ terms:
But, in Euro or Yen terms it is not:
Crude
Looks to be breaking down:
Meanwhile, no flight to safety:
Treasuries, 30yr, 10yr, and 2yr below, not at highs, on a yield basis, but much closer than one would think with the action in Gold and Crude.
So, what is the issue? Looks to be credibility in the $, or more bluntly stated, is the world losing confidence in the United States?
Before we get overly concerned about the juxtaposition of this chart, let’s take a longer look back.
As shown above, we are not in uncharted territory, especially considering who had just won the Presidency in November 2016.
But, as usual, it’s all about context. And heading into this recent period the US Equity market was trading at a premium valuation, some believe, because of “American Exceptionalism”.
According to the below chart, Foreign Investors own 18% of the US stock market. GS is suggesting they have seen heavy supply from this community, specifically in Mag 7, banks, and industrials. If this investor base is questioning the US exceptionalism thesis (and currently in the process of cutting their portfolio’s overall weighting dedicated towards US equities) then there may still be more selling to come.
To put this in a different perspective, Foreigners own $19 trillion in US equities, $7 trillion in Treasuries, and $5 trillion in US credit, see chart below.
That corresponds to 20% of US equities, 30% of Treasuries, and 30% of credit outstanding. – Apollo
Recent equity volumes would suggest that all investors were running for the checkout lines at the same time.
Listed below are the eleven occasions that US market has seen over 20b share volume days.
Out of these eleven days, 3 were major ‘index rebalance’ days. So only 8 days really matter. Out of the 8 that matter, 6 have been during the last 7 trading days.
Below:
- 4/9/2025 = 30.493b shares
- 4/7/2025 = 29.097b shares
- 4/4/2025 = 26.623b shares
- 4/10/2025 = 23.847b shares
- 1/27/2021 = 23.674b shares
- 12/20/2024 = 23.508b shares (rebalance day)
- 4/8/2025 = 23.475b shares
- 3/21/2025 = 21.035b shares (rebalance day)
- 4/3/2025 = 20.925b shares
- 1/7/2025 = 20.842b shares (DeepSeek reaction? Mag7 was hit hard)
- 9/20/2024 = 20.807b shares (rebalance day)
So, yes, there could easily be more selling pressure to come in each of the 3 buckets above, but with respect to equities should we really think it possible Foreign sellers will be selling the market closer to a bottoming multiple than a premium one?
Closer we get to a 17X, it becomes harder to believe that selling will be taking place simply for the sake of liquidation. Rational market theory would suggest otherwise.
As we all know, all it takes is one tweet about a Chinese deal and a large rally could easily manifest in the US equity market.
SCOTUS Risk
Only because of the exceptional volatility did we not lead with the below article this week. This easily could be the most impactful market event in years if it plays out as described below.
See the 3rd bullet point:
It may be a stretch, but could the potential politicalization of the Federal Reserve be contributing to the loss of confidence in the US markets/”American Exceptionalism”?
Death Cross
Should we be concerned that the death cross is imminent?
The last time we experienced the 50 day Moving average travel below the 200 day was early 2022, and it resulted in an almost 18% pull back in the SPX Index.
2 Differentiated Metrics
We have alluded to both of these metrics previously. They both would seem to indicate the real economy is slowing faster than other Marco metrics suggest.
The first is the Atlanta Fed GDP Now forecast. It presently has Q1 GDP coming in negatively.
https://twitter.com/AtlantaFed/status/1910001380103684264
We mention this because we are now hearing/seeing anecdotal information related to the tariffs that suggest commerce is freezing up.
So, yes, this is only one example. But, we heard the CEO of the long beach port interviewed earlier this week on CNBC. His call was that 2H 2025 volumes could slow by anywhere from 10% to 20%.
We wanted to see what they looked like YTD already.
As shown above, volumes are already down 19% YTD, so another 10 to 20% would place them in line with previous periods where in fact a Recession did occur as those volumes slid closer to 30% down.
Making the Atlanta GDP Now metric all that more plausible.
The other differentiated metric we keep an eye on is a little more off the beaten path, but we think it may start to pick up some more credibility in the near future.
https://truflation.com/marketplace/us-inflation-rate
The CPI was released this week:
The YoY CPI came in at 2.4%. Two months ago the Truflation metric had their call at 2.42%. So, we are starting to wonder whether this metric is a helpful read on forthcoming CPI reports. If so, one could easily argue that the Federal Reserve’s dual mandate may be down to just a focus on one going forward.
We sure hope that is the case, because the higher rates for longer is only continuing to freeze the Home buyer’s market.
According to the Federal Reserve Bank of NY, 42% of mortgage refi applications are rejected.
To put refi’s in context, below is a chart showing how they are presently only 25% of the high levels in 2020, and half the levels in 2016 pre pandemic. Yet with yields higher, the 10yr TSY is the lower panel around 4.4%, it certainly does not look like this market will come to aid a falling US GDP in any way.
2 Final Thoughts
Couple final thoughts to leave you with:
https://x.com/TruthGundlach/status/1910479456923508930
Tim Cook explains why Apple chooses China for manufacturing.
Can America replace this?
https://x.com/AdameMedia/status/1910598431254491449
Have a great weekend!
Best,
Meraki Trading Team
About Meraki Global Advisors
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