Market Update From NDR’s Ed Clissold 

Join Chief U.S. Strategist Ed Clissold of Ned Davis Research as he breaks down the latest trends shaping the markets. From earnings pressure to sector shifts, get data-driven insight to guide your next move.

Summary – IBKR Podcasts Ep. 259

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jose Torres

Hello everyone. It’s Jose Torres again, Interactive Brokers IBKR Podcast. I’m joined with the Chief U.S. Strategist of NDR Research, Ned Davis Research, and that is Ed Clissold. Once again, welcome, Ed. Happy to have you here. 

Ed Clissold 

Thanks for having me back. Looking forward to chatting again. 

Jose Torres 

So it’s May 1st, and stocks are off to their eighth consecutive gain—eighth day in a row of gains. But before we get into that, I know you have a lot of insightful things to say about equities. Tell us a little bit about NDR Research—what you do, what you guys do, and where can folks learn more about your offerings? 

Ed Clissold 

So probably the easiest way to do that is—we have an email set up for Interactive Brokers. It’s just ib@ndr.com. That’s ib@ndr.com. Email there and we can get you some more information. Also, of course, we have our website at ndr.com. That’s ndr.com. You can look us up there as well. 

Jose Torres 

And what kind of stuff are you providing—I know, but for the listeners—what’s your recent topics? What kind of research angles have you been providing in the group? What are some exciting things that have been happening at NDR lately? 

Ed Clissold 

We cover the main asset classes, and not only in the U.S., but globally. So you’re looking at stocks, bonds, cash. Within equities, we focus on style boxes, sector work, and also thematic opportunities—so anything that doesn’t necessarily fit into the neat sector lineup. Some ideas as well. 

And then we cover fixed income in detail, and currencies, as well as global economics. And I think what a lot of people like about NDR is—we’re very data-oriented. Of course, everybody says they’re data-oriented. Nobody’s gonna come in there and say they just wing it. But really, for us, it’s all about our data and our process, and we’re following that process. 

So if you want an objective view that isn’t somebody’s opinion or preconceived notion about any of those asset classes, that’s where NDR is. 

Jose Torres 

So great. Now eight days in a row of gains. The S&P was almost in a bear market—actually, effectively was in a bear market for maybe five minutes or less or whatever—when we went down to roughly 4830 or something like that. But now we’re up in the mid-5560s. What are you telling your readers, your listeners? How are you thinking about the state of the markets these days? 

Ed Clissold 

The markets get into a downtrend—they tend to go through a four-step bottoming process. And we’ll talk about it here. This is mostly technical and sentiment-driven, and we can talk about the macro and the fundamental—how things look a little bigger picture in a minute. But for right now, look—the four steps are: oversold, rally, retest, and then breadth thrust. 

Clearly, the market got incredibly oversold. Probably the easiest stat to remember is that the two days after Trump’s Liberation Day announcement, the S&P fell 10.5%. There’s only been three other times post-war where the S&P fell 10% in two days. That was in October 1987—I’ll remember that one—November of 2008, that was right around when Lehman was being liquidated, and then in March of 2020 during the pandemic—and then April. So it tells you just how oversold the market got. 

We also have the sentiment composite. It has about 25 different sentiment gauges in there—things that probably a lot of our listeners see every day: call ratios, the VIX index. Also some polls of individual and institutional investors. We get 25 of them together, we average them all to give you a number—and it was the most [extreme]. 

If you remember, that’s when the market was falling apart. Powell was determined not to cut rates. The market was telling him that he needed to, and then he capitulated. But that tells you just how washed-out sentiment was. So you got that first thing—the oversold—clearly checked. 

Now, over the next few weeks, we got lots of rallies, but they really didn’t stick around. Those were not really robust enough for us to say, “Oh, that was it.” Instead, what the market was doing was it was going through that step three: the retest phase. 

Now, what you want to look for on those retests are signs of less selling pressure. So it doesn’t mean the S&P, the Dow, and Nasdaq—they can actually make new lows—but it’s really about things like less volume, less downside volume, fewer stocks falling below their moving averages, fewer stocks making new lows. 

And so if you go back even just a couple of weeks ago, before we started this run—if you think like last Monday, the market was down 4% intraday—Trump had said he couldn’t get rid of Powell soon enough. And then the market rebounded intraday. But from there, we got pretty close to lows on the major averages, but the breadth was much better. So we said at that point, “Hey, this looks like a pretty good retest.” 

Now let’s keep an eye on step four—those breadth thrusts. So “breadth thrust” is a funny term, but what it really means is stocks moving up together. 

You can measure it—you can have advancing volume (all stocks that went up in the day, what’s their volume) versus declining volume (stocks that went down in the day). If that’s a really high ratio of advancing to declining volume, that’s an example—we got that. 

You also would like to string together, say, five days of advances beating declines by a wide margin—we’ve gotten that. There’s another one that people have followed—it was pioneered in technical analysis—just looking at advances and declines over 10 days, and we got a signal from that where we got a really high number. 

So we’re really starting to stack these things together. Now, we have 12 breadth thrust indicators we follow—we’ve tested it back historically. We really need five to say we’re in the clear. As of right now, we’re sitting at four. We’ll see at the end of the day today if we get a fifth one—it’s quite possible. 

So it looks like we’re getting through that bottoming process. But again, we gotta let the data speak for itself. But that’s how we’re looking at things right now. 

Jose Torres 

It seems like we’re getting close to mid-year now and past President Trump’s first hundred days. It seems like investors are enthusiastic. We got a GDP report yesterday that was a contraction—really, it was driven by a huge surge in imports. That, from my economist lens, points to net exports—so the difference between exports and imports—turning from a significant headwind in the first quarter to actually a pretty sizable tailwind in the second quarter. 

And when I think about what investors can get excited about, there are so many things: agreements, taxation package, mild deregulations, continuation of low oil prices. All these things just add further fuel to the fire of this rally. I think that’s part of the reason why we’ve had eight days in a row. 

And then President Trump is also behaving—he calls out Powell, but he vents, and then some other cabinet members—maybe Lutnick—sit him down and maybe calm him down a little bit. And the next day, he changes his tone. Same thing on trade—really aggressive in the beginning, now more in the middle. 

It seems like maybe we’re at an inflection point and we can have a more, less bumpy ride from here. 

Ed Clissold 

I think you hit a lot of really important points there, Jose. And trying not to become too much of a guesser about what’s going on in Trump’s head at the moment—it does seem like maybe they’ve come back from the abyss, which was the idea of just going full steam ahead. And maybe the markets were telling Trump that’s not going to work. 

And not just the stock market—the bond market too. It was very unusual. Bond yields were not just rising, but really spiking higher, while other risk assets like stocks were going down. And the administration said their main interest was long-term interest rates, and they weren’t achieving their objective. 

Now, was that part of a master plan—to maybe start off asking for a whole lot and then walk it back and claim victory? I’m not going to venture to guess what the long-term plan was, if there was one. You’re right that now we’re at a more reasonable point. 

And in terms of that GDP, yeah—there was an absolute pull-forward on trade. If you look at personal consumption expenditures, which is the main part of the U.S. economy that contributed, we did 1.2% to GDP growth last quarter. Down some from the last few quarters, but still in expansion territory. 

And if you looked at real final sales—excluding inventories, trade, and federal government stuff—that was still solidly positive. Coming into all this, I think the message was: the economy was in decent shape. And now we’re just going to have to see from here what the negative consequences are. There will be some—let’s not try to sugarcoat it. We’re going to get some rough economic data over the next couple of months. It’s just reassuring to think that we came into it in decent shape. 

Jose Torres 

Another thing that investors can look forward to that I didn’t mention earlier was Fed rate cuts. It’s May 1st—three consecutive days of weaker-than-expected labor market data. Tuesday: JOLTS. Wednesday: ADP—big miss, down to 62,000 headline payroll gains roughly. Then today, on unemployment claims, we got continuing claims up to the highest level since November of 2021, and initial claims jumping up to 241,000, which is escaping its range of roughly 220, 215, 225. 

But we also got—and to your point—a really bad Prices Paid number on ISM Manufacturing today. It got up almost close to 70. I think though that the low oil prices are really going to cushion goods price pressures. I’m hoping—that’s part of the bull case. 

As far as consumer spending—Ed, one thing that I thought was huge: January and February were terrible months from a consumer spending perspective. But they really came out in March—0.7% in real terms because inflation was zero, so 0.7% volumes—and that negated the first two months. Business investment I thought was incredible—added 3.6%, albeit we didn’t get a positive number because imports subtracted five. 

What kind of bad economic data are we talking about here? Are you more worried about an inflationary uptick or a consumer spending retrenchment? 

Ed Clissold 

Yeah, I think there’s a couple things to consider here. 

One is, let’s look at consumer spending. And when you’re talking about consumer spending, one of the things—one of our mantras at NDR—is: don’t count out the American consumer. If there’s something we love to do, it is to spend money. 

And so what it’s really tied to is the labor market, because for a few years we had this cushion from COVID with excess savings. Except for the highest of income earners, that’s largely been spent off. And for the highest income earners, it really is dependent on the labor market. 

And so that’s where we want to keep an eye on things. Because if the labor market weakens too much, then you’re going to see a decline in consumer spending. Are we going to see weaker consumer spending? I think we will—because you’re already starting to see signs of less hiring, a little bit harder to get a job if you’re looking for one. That’s continuing claims. 

So it’s going to be there to some extent, but as long as we’re still adding jobs every month, then the consumer could be okay. Our macro team thinks there’s absolutely a risk of a recession—and we can talk about all the downside stuff in a minute if you want—but I think that’s part of it. 

Now, the inflation side—we can take core inflation and put it in three buckets. You talked about energy prices, which we don’t want to dismiss, but for core inflation you’ve got goods, you’ve got housing, and you’ve got all the other stuff—what we call “supercore.” 

The housing part had actually been coming down. But as we get into the second half of the year—tariffs, multifamily home prices, apartment rents—really, we’re likely to start rising next year because we’re going to have a lack of supply. It takes about three years to build an apartment complex. Three years ago, the Fed was hiking aggressively, so that kind of brought that to a halt. That would obviously bleed into single-family homes too. So there’s a risk there in the second half of the year. 

And then you get into the goods side of things—that was actually mildly deflationary. If you look at the CPI for goods, it had been negative for well over a year, each month. Now it’s starting to turn positive. You throw on some tariffs—that’s going to be positive. And so that’s going to make the Fed’s job a little bit harder. 

I think most people expect them not to do anything in May. It’s quite possible that they could cut two or three times later in the year. They’re just going to need to get enough evidence that the inflation data is more of a one-time shot and not something that’s going to be stacking on top of itself. 

So that’s where we go. Obviously, I look at—not just inflation, not just consumer spending—but both of them together. But I’d say: keep an eye on the labor market. 

Jose Torres 

One thing about the labor market is, sometimes since 2017–2018, we’ve had this dynamic where job openings have been significantly above the number of unemployed folks. At the peak, we had more than a 2-to-1 ratio. But the issue was that we had a mismatch. The job openings we had couldn’t be filled with the skills of the unemployed. Something tells me that dynamic still exists. We’re not going to have those kinds of upticks in unemployment that we had pre-2008 and before that. I guess that’s one reason to stay optimistic—there’s just a shortage of skilled labor, it seems. 

And in general, in the NFIB survey, which is for small businesses—which make up roughly 50% of employment in America—they’ve been complaining for years about labor quality and not being able to find capable workers. So I’m hoping that the labor market can stay strong. But it definitely can deteriorate as well. We’ve already seen a pretty—I’d call it a weird kind of softening in the labor market. We have the hiring rate really down. We have this dynamic where continuing claims are really elevated, but initial claims aren’t. And it takes a while to get a job if you lost one or if you quit one. 

But if you’re already in a job, there’s not that much pressure from an employment perspective—apparently not even in the federal government, according to what Elon Musk said a few days ago. 

Now, shifting gears a little bit—what do you think about equity sectors from here? I know your followers and your audience really like what Ed Clissold has to say about sectors and growth/value kind of dynamics. Where’s your head at for those kinds of concepts? 

Ed Clissold 

So before I get into that, there’s something I want to address… 

Jose Torres 

Sure. 

Ed Clissold 

Where I think the rubber’s going to meet the road is if you’re looking at companies’ earnings reports as they come out—gross margins, I think, are going to be the focal point this cycle. 

The reason I say that is: what’s in gross margins? It’s sales minus cost of goods sold. Tariffs are going to hit that harder than maybe we’ve seen in the last few cycles. And we looked at recessions—not saying there’s going to be a recession; we want to be clear—there’s increased recession risk. We’re not calling for one outright. But you can use them as an example. 

Since the 1990s, gross margins have fallen a lot less than, say, pre-tax margins or even operating margins like income before a drop—because there’s a lot of leverage in the system, so companies felt it further down. But in 1990, actually, the gross margins—that’s where the pain was. And that’s when maybe the economy was a little bit different—more manufacturing-based. 

So if tariffs hit hard, then companies are going to say, “We’ve got to protect the gross margin.” What’s the biggest input for gross margins? It’s actually not the goods themselves—the materials—even when you throw in tariffs. For most companies, labor is by far the biggest part of cost of goods sold. And so that’s where I think the risk is. If tariffs hit margins too much, then companies are going to say, “I’ve got to cut here.” And what’s the best way to do it? If I can’t cut input costs, I’m going to have to cut labor—which means firing. 

So that’s where the risks are. Again, it’s not a zero risk—there’s a very real chance that companies feel compelled to cut. 

Now, getting into sectors: where we are right now is—we’re overweight utilities and consumer staples. So two kind of defensive sectors as we navigate through. And ironically, up until very recently, even as the market rebounded from those early April lows, defensive sectors really held in there pretty well. It kind of tells you where sentiment was. They withstood a more difficult economic environment, but also the cost structures were maybe a little more favorable. 

Healthcare is another area we have our eye on. Coming before you head into an election—if the incumbent party loses—healthcare usually underperforms because it’s a popular whipping boy for a lot of politicians. So you say, “Oh my goodness, new party in control—they’re going to really shake up healthcare.” That happened in 1992 when Clinton came in. Certainly, through RFK Jr., there’s been a lot of talk about that this time. And healthcare underperformed coming into the election. After a couple of months, healthcare tends to rebound, because usually the bark is worse than the bite. And that’s what we’re starting to see from healthcare as well. 

So then the final thing I’d say here is that we’re starting to see some pretty resilient earnings reports from technology. And there’s been some carve-outs from tech from some of the worst of the tariffs. So through maybe some political maneuvering, those earnings may be in better shape. That’s another area to take a look at. 

And the final point is—the energy sector. I think because of what you talked about—low oil prices—it could be a tough one. And Trump’s been putting pressure on OPEC to increase drilling. So maybe that’s not a sector to focus on at the moment. 

Jose Torres 

So it sounds like you have more of a value orientation? 

Ed Clissold 

So officially it’s neutral, because we think that there’s the tech possibility. But I think—if you take a look at our overweights—yeah, it’s more staples, utilities. That’s a defensive value tilt, for sure. 

Jose Torres 

So in conclusion, Ed—what’s the last thing you want to say about the state of the markets before we go? 

Ed Clissold 

Yeah, the thing I like to say—we talked about a lot of the bottoming process and positives. But we’re really going to get some messages over the next few months, and some of these messages are going to be pretty scary—about the state of the economy, about corporate profits. There may be some downward revisions. 

So just make sure you have a long-term plan and you’re sticking to that long-term plan. Now is the time for diversification—and not necessarily making big bets on any one sector, one stock—because this could break a lot of different ways. 

Jose Torres 

So now is not the time to be a hero. 

Ed Clissold 

Yeah, exactly. What do we say? The big money’s made on the big moves. And so there’ll be a time when the trend is clear, the path is clear—and maybe that’s a time to push some more chips on the table. We’ll leave the heroes for the superhero movies, and leave the boring stuff to the intro investment portfolios. How about that? 

Jose Torres 

Folks, that’s Ed Clissold of NDR—Ned Davis Research. He is the U.S. Chief Equity Strategist. Ed, we can find your research on NDR.com, through Interactive Brokers as well, and a few other venues you mentioned earlier? 

Ed Clissold 

Yeah—email ib@ndr.com. Also, our research… and actually— 

Jose Torres 

Thanks so much for joining us, Ed. We appreciate it. That’s Ed Clissold again, folks. Thanks so much for joining this episode of the Interactive Brokers IBKR Podcast. Don’t forget to like and subscribe—you’ll be updated on these videos, and you can receive them in your personal email. 

Jose Torres, Senior Economist. Bye for now. Thank you.