Stock market is a not great predictor of recessions, contrary to popular opinion, but a great predictor of economic bottoms.
Re the former it becomes more obvious when you consider that everyone has called 20 of the last 2 recessions at the very least.
Sentiment and positioning drive short term corrections. Sometimes they may happen ahead of the economy going into a recession and more often than that they do not.
Earnings growth deceleration + clear decline has led both the stock market and the economy during the last major recessions dating back to dotcom.
When Profits and profit margins are declining, a recession began within the next year about 27% of the time, compared to 5% when margins were rising.
Profit margins are currently rising even backing out contribution from private companies holdings in megacaps 10Q-s, roughly at 14.5%. Credits @EPBResearch.
To caveat,
Stock market decline and recession are independent variables.
Stock market can have deep corrections without a recession and huge rallies within a bear market.
My tweet was just addressing the claim “stock market is predicting a recession here” is false in general based on statistical evidence at the very least, and is contradicted on this occasion by economic indicators that predict the recession better than the stock market.
Stock market is a not great predictor of recessions, contrary to popular opinion, but a great predictor of economic bottoms.
Re the former it becomes more obvious when you consider that everyone has called 20 of the last 2 recessions at the very least.
Sentiment and positioning drive short term corrections. Sometimes they may happen ahead of the economy going into a recession and more often than that they do not.
Earnings growth deceleration + clear decline has led both the stock market and the economy during the last major recessions dating back to dotcom.
When Profits and profit margins are declining, a recession began within the next year about 27% of the time, compared to 5% when margins were rising.
Profit margins are currently rising even backing out contribution from private companies holdings in megacaps Q10s, roughly at 14.5%. Credits @EPBResearch.
There's a new version of this post
Profit margins still rising
PL retweeted
Construction and manufacturing jobs have fallen in 8 of the last 8 recessions, with two false signals.
Today, they're up 0.7% over the last 12 months, after dipping below zero.
The most cyclical part of the job market is growing again, not contracting.
PL retweeted
AI productivity gains are showing up, but only in ~15% of jobs.
The three heaviest AI adopters (information, professional services, finance) went from a 2.2% productivity trend to 5.0% since 2022.
The rest of the economy: 0.9% to 1.4%.
PL retweeted
A pattern can be perfectly ordered without ever repeating itself. Penrose tiling demonstrates this using just two kinds of rhombus, arranged according to precise matching rules. The resulting geometry has no repeating unit cell, yet it contains remarkable mathematical order.
The golden ratio appears naturally in its structure, while fivefold symmetry emerges without ordinary periodic repetition. This reveals something deeper about geometry: order does not necessarily require periodicity, a principle also found in the atomic arrangements of quasicrystals.
PL retweeted
Incredibly blessed to have friends much more skilled than me willing to take the time to share their knowledge.
Thank you! <3
What’s new in the market?
On a down day like today, every swing trader is gloating on X about their tight risk management writing schooling posts to bagholders re how their risk management sucks.
Meantime in June, swing circles were very quiet as majority underperformed while the low iq bag holder full ported recklessly and was up 1000%+ on obvious themes. Bagholders were very loud then.
Now that we’ve capitulated on panic type volume and action, swing traders are proud of being in cash and are citing how broken leaders never come back or “take forever to” yet we have V-ed in tech and semis every time off every sharp panic bottom since 2020. (2022 was steady bear not panic).
Literally see this cycle repeat few times every single year.
While all this is happening, short setups are printing money, mean reversion intraday is printing money, aggressive intraday move 2 move trading is printing. Long setups have worked on gappers last few days.
Those are all opportunities which have an objective quantifiable edge.
Opportunity capture is the fraction of them one is able to capitalise on with appropriate size.
Mean reversion bounce trade is a fat pitch likely incoming next.
Also interestingly other parts of the market are showing noteworthy rel strength vs tech/AI trade.
Theres tons to pay attention to in this market. High volatility creates opportunity.
It’s never “truly over” and we’re never “so back” for too long lately.
Only certain feature of reality is change and flow. Any take that imposes finality is a limited mindset.
What’s unique about this latest episode is how much concentration in positioning and leverage had built up in specific equity factors, rather than the broad indices themselves necessarily and the ones that have been hot for too long lately. The latter tho as a general tendency is also nothing new in markets.
Average stock 70% off highs even before this dump, and now AI and tech related investing factors fully rinsed of leverage with multiple long short funds rumoured liquidated, with bearish sentiment levels somewhat entrenched prior to this. Altho clearly that was not reflected in positioning until now.
A highly competent trader is as dialled in as ever at this point in time, for both longs and shorts.
PL retweeted
Nomura desk: Levered ETF selling now $41.2B , 2nd highest on record - Only Jun 5th 2026 was higher at -$51B
PL retweeted
Fuck.
For absolutely no reason whatsoever, here is a list of every time in QQQ history where it
▪ Gapped down -2.5% or worse
▪ On a Friday
▪ Following a -1% day
- 3 times in 2001
- Jun 2002
- Oct 2008
- Twice at the beginning of COVID
- Liberation Day
- Possibly today
Developing your taste in research, study, working and ultimately living is a personal exploration only you can engage with.
Your ultimate edge lies at the end of a journey, that journey starts with noticing things you do, but which others don’t.
Living life as an artist is living in service of the art. Definition of success or failure within this frame of reference has no meaning.
You either live in service of the art or you don’t.
You may find your taste changes over time and you grow to prefer a different form of practicing the art, or even a different art altogether.
Living as an artist means living in devotion, it is a path that may have its roots in some very practical beginnings and desire to fulfil a materialistic and/or a perceived self-identity need, but it ends in a journey towards understanding the self in a way that seems incredibly deep, perfect and complete in hindsight. At the end of the journey it can be said you will meet the true self and become one with it.
To find this path, one must decide to believe that it exists or can exist, and then couple the willingness to pursue the path at meaningful personal cost and risk. Nothing of great virtue can be gained without sacrifice. Notice connections and experiences and concepts you are drawn to as signposts.
Let's assume "perceived safety" in the stock market correlates with "size" factor ie market cap.
What do the weekly charts of top 24 stocks by market cap tell us?
Worst: $GOOG $AVGO $META <- two hyperscalers in there and chips $TSM still looks ok, and $ASML not terrible.
$AMZN in a range and $MSFT uptrend. so hyperscalers mixed too.
Bad "maybe"-s???
$MU (l-t uptrend so strong, looks like just digestion still) $JPM (bear ledging or orderly pullback) $ASML (choppy correction/downtrend)
Doing great:
$AAPL $LLY $BRKB (cash rich) $AMD $V $MA $XOM $JNJ $MA $ABBV $PLTR
so big pharma stands out. consumer seems ok? $V $MA strong and $WMT decent.
$XOM explained by oil.
overall, i get the sense its mixed / chop with early warning signs - when you stand back and zoom out.
PL retweeted
With growth scares replacing rate scares for now, expectations for a Fed hike this week have all but disappeared. But based on the SOFR curve the Fed is still expected to hike two more times in the coming months.
$GOOG weekly. had this range compression w lower highs at the rising 50wk MA (200day ish MA), and then a renge break after an extended up trend. I could only find one similar instance on the weekly and it was the 2021-2022 bull market preceding the 2022 protracted bear.
not implying for general market but after a key chart break like this, it can get deep. rel weakness to Mag7 (bar $META) and other clouds.
interesting...
