It wasn’t a bumper week for economic prints as the earnings season drew to a close. But we did get the Fed\u2019s Survey of Senior Loan Officers and the BLS\u2019 inflation report. Neither was an event
\nof consequence on the financial markets, where stock indices and bond prices had a lifeless week, until Friday when the debt ceiling deadlock was taken seriously. The S&P 500 nudged lower to 4124 closing above the first line of defense (4100) according to market technicians. I recognize that the media does not speak of the possibility of an imminent rally. Yet, systematic trend-following funds have been raising their equity exposure lately ahead of discretionary investors, who are heavily underweight the market. According to Deutsche Bank\u2019s Parag Thatte, equity exposure is at its lowest level in a year and at only the ninth percentile historically. I think investors are waiting for an official Fed pause. That will be announced in June. Stocks have done well during a Fed pause. Jonathan Golub, chief U.S. equity strategist at Credit Suisse, noted in the Barron\u2019s: \u201cthe S&P 500 has returned 16.9% on average in the 12 months following the last interest-hike of a cycle, while losing 1% on average in the year after the first rate cut.\u201d<\/p>\n
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