DataTrek still optimistic on large cap stocks

DATATREK STILL OPTIMISTIC ON LARGE CAP STOCKS

U.S. stock markets have tumbled, with the S&P 500 SPX dropping more than 5% from its most recent closing record, on concerns that weakening U.S. economic data will lead to a downturn, while tariffs are also raising fears over a resurgence in inflation.

But Nicholas Colas, co-founder of DataTrek Research, sees several reasons to look on the bright side of large cap U.S. stocks.

“Oil prices are dropping, and it’s hard to have a recession when energy prices decline. Long term yields are also moving lower, reducing the cost of debt financing. The dollar is weakening, a positive sign about global investor sentiment. Rate cut expectations are rising, a useful counterweight to a slower economy. Lastly, US equities have not seen unusually high volatility,” he said in a note on Wednesday.

Colas notes that every recession between 1990 and 2019 came with markedly higher crude prices. Lower long-term Treasury yields, which stimulate the economy, have also been part of every U.S. economic recovery since the 1970s.

Recent weakness in the U.S. dollar may also be reassuring as the greenback always rallies when there are outsized concerns about the global economy. Traders, meanwhile, are pricing in greater odds of more rate cuts this year, and a rising chance of cuts resuming in May.

Equity volatility, for its part, has also remained in normal bounds and has so far not reached levels reached after the failure of Silicon Valley Bank in March 2023, the sudden yen appreciation and Nikkei stock flash crash of August 2024 and the December Fed meeting, Colas said.

All of this leads DataTrek to conclude that “while we expect markets to remain choppy this month, we remain positive on US large caps.”

(Karen Brettell)

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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:

HUMP DAY DATA ROUNDUP: ADP, PMI, FACTORY ORDERS, MORTGAGES

U.S. STOCKS TRY TO EXTEND THEIR REBOUND

S&P 500 INDEX: TRADERS BOW TO THE MAGIC OF THE 200-DAY MA

POSITIONING FOR MORE VOLATILITY

WHAT WILL THE ECB MAKE OF ALL THIS?

EUROPE'S DEFENCE BOOM, SOMETHING FOR US CONTRACTORS TOO

PICTET GOES OVERWEIGHT EUROPEAN STOCKS, DOWNGRADES U.S.

BIG BOUNCE, MDAX STANDS OUT

EUROPE BEFORE THE BELL: "A REALLY BIG BAZOOKA"

TARIFFS STAND OUT AMID MENAGERIE OF MARKET DRIVERS