Daily Morning Brew – May 16, 2025: Jaws, Hacks & “Soft Landing” Hopes
All Coin (no base or advice)
Good Morning Team,
Just when you thought it was safe to go back in the market, Walmart decided to play the villain in our feel-good recovery story. The retail giant known for “everyday low prices” basically yelled “shark!” in the economic pool by warning that price hikes are coming, which could drag down consumers and tip the US into a recession. It’s as if Jaws showed up at a pool party – shoppers and the Fed alike might need a bigger boat (or stronger stomach). Meanwhile, Coinbase (COIN) discovered a $20 million hacker ransom plot the hard way, with intruders roaming its systems since January. And in Washington’s theater, Jamie Dimon is doing his best Magic 8-Ball impression, saying recession is still “possible” thanks to the tariff crossfire.
Talk about a fun Friday. But hey, the market took a look at all this chaos and, in true 2025 fashion, shrugged – focusing instead on hopes the Fed will blink and cut rates to save the day. Bonds rallied, yields fell from recent highs, and stocks even notched a “base hit” of gains as money sneaked into boring defensive sectors. It’s like this rally traded its superhero cape for a comfy sweater, and surprisingly, that defensive rotation is a healthy development. In other words, the market’s gone Full Grandpa (utilities and cereal stocks) and that’s not a bad thing.
Bottom line: Walmart’s sounding inflation alarms, Coinbase got hacked, and the Fed might finally play nice – yet markets are finding a groove. Remember, just because the economy might be headed for a downturn “doesn’t mean your trading account has to go with it”. We’re here to make sure you’re riding the right waves (and dodging the sharks).
If You Do Nothing Else Today… check that you’re not overexposed to the high-flying hype. Trim a bit off those sky-high tech winners and add some down-to-earth defensive plays for balance. Your portfolio will thank you if Walmart’s recession Jaws actually bites.
Macro Roundup
Walmart just threw a truth bomb: tariffs are coming straight for your wallet. In plain English, the retailer’s CFO basically warned that price hikes will hit shelves soon. Every other company is in the same boat – either absorb those costs (ouch margins) or pass them to you.
The result? Shoppers will buy less, and that’s a one-way ticket toward slower growth. All this plays out against a backdrop of mixed data: April’s producer-price index unexpectedly fell (0.4% drop), even as softer retail sales and Fed-speak left traders guessing. Yields have been on a roller coaster – 10-year Treasuries poked above 4.5% on inflation jitters before swooning as the Fed flight march continued. The 30-year yield even flirted with 5%, levels not seen since spring.
Meanwhile, Wall Street is in a suspiciously sunny mood: call options are flying off shelves like TikTok dances, pricing in an even bigger S&P advance. Apparently Mr. Market is betting Santa’s not cancelling Christmas yet. Global growth forecasts, however, are getting darker by the day: companies worldwide keep slashing their earnings outlooks thanks to trade-war uncertainty. “Sell America” bets (i.e. foreigners piling into non-US stocks) appear to be fading – people are eyeing a dollar rally and U.S. stocks again. Trump’s brief truce on tariffs helped international markets breathe, but most CEOs still see a chokehold on profits. In short, policymakers have softened their tone (Fed Chair Powell hinted at dropping last year’s “average inflation” promise) – so rate cuts may lie ahead if the U.S. economy keeps losing steam.
But for now, the only concrete thing on tap is volatility.
Strategy
Given all this, we’re playing it barbell: defend against the downtrends, but don’t abandon the potential bounce. Yes, Walmart’s warning is real – consumers are tapped out – but bond-market inflation signals suggest the Fed can afford some rate relief later. In practical terms, we like sticking with quality and duration. High-quality tech/industrial companies should weather a slowdown better than retailers does, and long-dated Treasuries may come back to life once the data revisions sink in. Don’t forget the yield curve is steepening: short-term rates are pinned by Fed patience while long rates stay elevated on fiscal fears. That gap should widen.
We also think the “sell America” trade is really done. After a brief USD slide, the greenback is poised for a comeback. A stronger dollar would punish foreigners, which means U.S. assets look relatively safe again. Finally, don’t ignore commodities: oil, in particular, has room to run. OPEC’s “extra” barrels weren’t really extra, and U.S. shale isn’t flooding markets. With global demand still chugging (summer driving and all), energy should rip higher. Bottom line: tilt modestly toward U.S. equities (especially tech/industrials) and longer bonds, and keep the dollar in your sights.
Trade Ideas
Long U.S. Treasuries: Yesterday’s 10-year bond tantrum was overdone. With Fed cuts eventually on deck and softening data, yields can drift lower. Go long bonds or bond funds (think 10Y/30Y Treasuries or TLT) as a hedge. The math on Powell’s new playbook suggests lower-for-longer rates.
Long S&P 500 / Tech & Industrials: Bulls are still drinking the “soft landing” Kool-Aid, and options traders are loading up on calls. We’re overweight domestic equities (SPX or SPY/QQQ). Within that, keep heavies on tech (e.g. AAPL, MSFT, NVDA, META – basically the stuff people actually use). Industrial names (think HON, GE, or even XLI) also get a nod: Big caps have already built in a modest tariff blow, and analysts still see upgrades if trade war truce holds. Earnings season is nigh; weakness likely sticks to weaker balance sheets, not big tech.
Long U.S. Dollar: That “sell-dollar” crowd seems surprised. As bond yields perk up and foreign growth falters, the dollar should regain footing. We’re bullish on DXY/UUP or short the usual suspects (e.g. USD/JPY, EUR/USD positioning). Every Fed policy pivot hanging in the air is a reason the greenback rallies if U.S. looks relatively stronger.
Long Oil/Energy: Oil’s little tantrum after the Iran “deal” talk was premature. In reality, most sanctioned oil was already floating under the radar, and OPEC+ output cuts aren’t about to reverse. With refiners cranking up for summer and inventories tight, WTI (around $62) feels cheap. Buy the dip via crude futures or energy ETFs (XLE). If OPEC actually raises output quotas, that’s bad signal for its own tanks, not a flood.
Curve Steepener: The bond curve is already giving us hints. Short-duration yields (2-5 year) remain anchored by Fed-talk, while long bonds (10-30) are creeping up. Going long 30Y and short ~5Y (or using a steepener strategy ETF) could pay off. Traders are already unwinding front-end rate-hedges, so extend that play: the 5Y-30Y spread looks set to rip higher.
Underweight Consumer Discretionary: (If we had to pick a loser) Walmart’s message implies U.S. shoppers will cut back. We’d tread lightly on retail and restaurant chains for now. Lower spending and higher debt loads (credit lines maxed out) mean pain ahead. XLY (SPDR Consumer Discretionary) is skinnier in our portfolio; skip the fancy Jordans and hold your cash.
Model Portfolio Allocation
Our official 60/40-ish model hasn’t flipped dramatically, but we’ve tilted the weights: roughly 50–55% equities, 30–35% fixed income/cash, with the remainder in commodities and alternatives. Within stocks, we’re skewed toward U.S. large-cap (tech/industrial) and underweight consumer cyclical. Bonds get a long-duration bias (to capture that steepener view). We’ve also carved out a small spot for energy exposure (think 5–10% via ETFs or futures) because oil’s fundamentals are firm. Cash and cash equivalents sit near 10–15% in case volatility spikes. The gist: safe assets (quality stocks + long bonds) are a bit overweight, growth is king among sectors, and we’re patiently waiting on the sidelines for consumer bummers to play out.
Conclusion
In short, it’s a weird market dance: tariffs are trying to stomp the beat while speculators hustle like nothing’s wrong. We’re strapping in for a choppy tune. Keep the exposure tilted toward “boring wins” – long-dated Treasuries, superstar tech names, and anything energy-related – because the other shoe (or tariff) probably hasn’t dropped yet. A hawkish Fed (even if it doesn’t hike) and a grumpy consumer argue for caution; a dovish pivot and easing trade war would argue for cyclicals. We’re betting the former has the near-term upper hand.
So pop the popcorn, not the champagne: if you play it right, you might just surf both waves. After all, in these markets the smartest thing might be to stay a step ahead of the Punchline. Keep your stops tight, your sense of humor intact, and let someone else live dangerously on the tape you’ve got other trades to win.
The End. (Until tomorrow’s chaos.)