Morning from Copenhagen. 

Despite the benign tones from Powell Wednesday US equities have had a hard time really gaining momentum, likely because most factors are still pointing to lower equity prices, making the barrier for a decent sized rally difficult to breach. 

When looking through history of times where S&P 500 dropped 10%, the key difference for the path forward is whether the US will end in a recession or not. In the times where a recession follows the initial 10% correction, equities continue further south – if there’s not a recession, we are back to new ATHs around 150 trading days after the previous ATH, and the question to ask yourself is therefore: will the US recession around the corner? If not, we are closing in on a point where US equities might be a great buy here.

In our model package we are still somewhat far away from a recession compared to the growth deterioration we saw in 2022, and most of the weakness in the US economy is contained within soft data (for now). Risks are still that it will appear in hard data going into April as we get more flavors on the DOGE and tariff effects, but there are still a long way to 2 consecutive quarters of negative GDP growth – we would likely need to see outright negative retail sales / consumption for that to happen, and we are still miles away judging from spend trends, bank lending etc., which are slowing, but not contracting.

I therefore doubt how much value there is left in the short equity bet, even as every single macro model is currently pointing towards lower equities as a consequence of slightly higher inflation and growth levels that are too low for comfort.

Chart 1a: It all depends on whether we will get a recession or not