Why the Consumer is a Critical Indicator to Watch for Any Economic Downturn

Market Volatility and Positioning - Market volatility is expected to be a feature this year, driven by high valuations and earnings expectations, indicating limited cushion for absorbing bad news [2][3] - Recent corrections are viewed more as positioning and sentiment resets rather than true growth scares, suggesting they are likely to be shorter and shallower [3][4] Key Metrics to Monitor - Two critical metrics to watch are market leadership and intermarket analysis, particularly high yield spreads, which remain contained despite concerning headlines [6][7] - The ratio of equal weight consumer discretionary to consumer staples has softened, which could indicate pressure on consumer spending, a significant driver of GDP [8][9] Consumer Spending Insights - Recent jobs data showed stronger-than-expected results, but retail sales numbers were weaker, presenting conflicting signals about consumer behavior [10][11] - The K-shaped economy is highlighted, where consumption is primarily driven by wealthy households, necessitating a strong stock market to sustain their spending [12][13] Software Sector Analysis - The software sector is experiencing significant selling pressure, referred to as "software as a soreness," indicating that trades in this area are likely to be short-term [16] - The software index has shown oversold conditions, but any bounce has been short-lived, suggesting ongoing challenges within the sector [16][17]