How Deep Can This Market Reversal Go?

Overextension and narrow breadth make the capitalization-weighted S&P 500 vulnerable to a correction

Key Takeaways

• Freight Contraction Shows Weakness in the Real Economy: The AI spending boom has masked the fact that the other 92% of the U.S. economy is either in stagnation or contraction mode. All you hear out of the White House are all the “deals” in the future, but in the present, we are in an official freight recession.

• Auto Sales Fall to Nine-Month Low: With the EV tax credit gone, auto sales tumbled by nearly -7% MoM in October to 15.5 million units (annualized), down to a nine-month low. Combine that with the -0.4% MoM decline in Johnson Redbook chain-store sales, and Q4 is starting off in the hole as far as the American consumer is concerned.

• Beige Book Shows Labor Market Stagnation or Decline: When you look at the latest Fed Beige Book, a report that Jay Powell indicated has been elevated to a top-tier indicator for the central bank, you can see the degree of erosion in the U.S. labor market. Of the twelve FRB Districts, only one reported net job growth, while four reported employment contraction, and the remaining seven were completely flat.

While We Were Sleeping

“I think there are sectors of the economy that are in recession.”

— Treasury Secretary, Scott Bessent, November 4th