Michael A. Gayed

1 week ago | leadlagreport.substack.com | Michael A. Gayed

The market seems to finally be calming down somewhat. The most aggressive of trade war escalations between the United States & China appear to have hit a peak with no further increases to tariff rates. The rhetoric looks like it’s slowed down and Trump has begun backing off some of his most potentially impactful tariffs.

1 week ago | leadlagreport.substack.com | Michael A. Gayed

Below is an assessment of the performance of some of the most important sectors and asset classes relative to each other with an interpretation of what underlying market dynamics may be signaling about the future direction of risk-taking by investors. The below charts are all price ratios which show the underlying trend of the numerator relative to the denominator. A rising price ratio means the numerator is outperforming (up more/down less) the denominator.

1 week ago | leadlagreport.substack.com | Michael A. Gayed

You just need the right set of conditions for a risk rotation strategy to work. Of course, you’ll remember that 2022 was the historic anomaly. Stocks were correcting more than 20%, which should have been ideal for bonds as the “flight to safety” alternative. Instead, long-term Treasuries fell even more. The hyper-acceleration of inflation and the most aggressive rate hiking cycle in history from the Fed sent yields soaring.

1 week ago | leadlagreport.substack.com | Michael A. Gayed

Last week might have been the emptiest feeling 5% weekly gain for the S&P 500 I can remember. While the pause on many of the Trump tariffs may have soothed the worst fears of investors, it didn’t really do much to make the argument that we’re back on the upswing. How To Interpret the Signals: Within each strategy, there is a risk-on and risk-off investment recommendation, with the risk-off option being the more conservative of the two.

1 week ago | leadlagreport.substack.com | Michael A. Gayed

There are almost too many moving parts right now to get a handle on everything going on, but let’s give it a try. Trump finally decided enough was enough and decided to pause tariff implementation on a number of trade partners. China has pretty much become the sole target and with tariff rates up to 125% from both sides, this trade war is far from over. It seems like stock market volatility wasn’t enough to elicit a response from Trump, but bond market volatility was.