Weekly Chart Review

Negative GDP...Now What? + The Market Map - Lesson #3

Hey everyone, it’s Jim.

I hope you had a great weekend!

Let’s dive into this week’s newsletter.

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In this week’s newsletter:

• Stay Informed

  • Key Macro Events From Last Week (ICYMI)

  • Key Macro Events To Watch This Week

• The Market Map - Lesson #3

  • Application - S&P 500

• Deep Dive

  • Negative GDP…Now What?

• S&P 500 Fair Value Model

• The Market Map - Extended Analysis

  • Major US Indices

  • 11 Major US Equity Sectors

  • US Treasuries

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Stay Informed

Key Macro Events From Last Week (ICYMI)

Here’s a brief recap of the major U.S. economic releases from last week:

• Conference Board Consumer Confidence (Apr): Dropped significantly to 86.0, a 13-year low, down 7.9 points from March, reflecting heightened consumer pessimism amid tariff-related economic uncertainty. (Link)

• GDP (QoQ) (Q1) & Core PCE Price Index YoY (Mar): Q1 GDP contracted by 0.3% annualized, below the 0.2% expected, driven by a 41.3% surge in imports; Core PCE slowed to 2.6% in March from 3.0%, aligning with forecasts but overshadowed by Q1’s 3.5% rise. (Link)

• ADP Nonfarm Employment Change (Apr), Nonfarm Payrolls (Apr), & Unemployment Rate (Apr): ADP reported a weak 62,000 private payrolls added, missing the 115,000 forecast; Nonfarm Payrolls rose by 177,000, above the 130,000 expected; Unemployment Rate held steady at 4.2%. (Link)

These releases highlight growing economic concerns, with tariffs impacting growth and hiring, though inflation showed signs of cooling in March.

Key Macro Events To Watch This Week

The key event this week will be the FOMC rate decision on Wednesday.

There is currently a 97.2% chance that the Fed will leave rates unchanged at 4.25% - 4.50%.

Additionally, the market is currently pricing in 3 rate cuts between now and year-end. Let’s see if that changes after the announcement and, more importantly, after J. Powell’s presser at 2:30 pm ET.

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The Market Map - Lesson #3

This week, we’ll jump into Lesson #3. If you didn’t catch the previous two lessons, please go back and review those first (Lesson #1, Lesson #2).

This week’s lesson will discuss the idea of “internal structure” vs. “external structure.”

It’s a fairly simple concept, but it's easy to get stuck on it until you “see” it.

In previous lessons, I’ve used the following diagram to portray a bullish structure shifting into a bearish structure with each of the relevant higher highs, higher lows, etc. marked by the green and red circles.

The above diagram is a very simple structure where one price leg breaks the previous higher high, pulls back, then breaks the next higher high, etc. This is not how it always works in reality, though.

The diagram below is more realistic with swing highs and swing lows denoted by the green/red circles. What happens between them (grey shaded box) is simply “internal structure”.

It would be easy to think that the price action that caused the yellow circle in the diagram below would constitute a bearish move, but remember, this is simply “internal structure” that is facilitating the pullback so that the market can then move higher.

Here is a real-world example where the price action in the grey box is all “internal structure” and was just used to create a pull-back to move higher.

That’s it for this week’s lesson. Use this week to try and find examples of “internal” and “external” structure.

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The Market Map - Application - S&P 500

Here is our updated S&P 500 chart and the metrics we want to consider:

Market State = Downtrend → Focus on taking shorts (and/or reducing longs).

Entry = I have highlighted three areas (OB, FVG, GZ) where a new downtrend will likely begin.

Target = Swing Low (4,835)

Stop Loss = Swing High (6,147)

The lower FVG has been taken out, and we are now firmly in the GZ.

I would not be surprised to see the price push up to somewhere in the context of the GZ midline (5,750 - 5,775) and then turn lower.

Note the black arrows which signify areas of confluence that could create resistance, thus facilitating the beginning of a move lower.

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Deep Dive

Negative GDP…Now What?

As noted above, the preliminary reading of US GDP (QoQ) (Q1) came in at -0.30% on Wednesday vs. an expectation of +0.20%.

It is important to note this is a “preliminary” reading, and could change (either positively or negatively) by the final print.

For argument's sake, let’s assume it remains at -0.30%, and let’s see what that has meant historically for the possibility of a recession and market performance.

Since 1948, there have been 12 recessions and 42 negative quarterly GDP prints. Of those 42 negative quarterly GDP prints, 36 (or 85%) have been associated with a recession.

• Note: to be “associated” with a recession, the negative GDP print had to be during the recession period (shaded areas on the chart below) or the quarter immediately preceding the beginning of the recession.

I have highlighted in the chart below (green arrows) the six times a negative GDP print was not associated with a recession.

Next, let’s look at the price performance (peak to trough) of the S&P 500 during these 12 recessionary periods and, importantly, the highlighted summary data at the bottom.

In the chart below, I am showing what the historical max, min, average, and median recessionary returns would be in the current environment (i.e., measuring from the most recent peak of 6,147 on February 19, 2025).

I have also added the projected decline based on my S&P 500 Fair Value Model for reference.

It is interesting to note that the S&P 500 could decline approximately -41% from the most recent peak to ~3,600 and still maintain the market uptrend that began in 2009 (black dotted line).

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The sections that follow are for paid subscribers only.

In these sections, we will discuss our proprietary:

• S&P 500 Fair Value Model

  • This model provides a guide for a) how far the S&P 500 could decline in the next recession and b) when to get back into the market after it has declined.

• “The Market Map” Systematic Process

  • We will call out specific price objectives (uptrends vs. downtrends, targets, stop losses, etc.) on the following:

    • Major US Indices

    • 11 Major US Equity Sectors

    • US Treasuries

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