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VIDEO: We continue to argue risk/reward remains positive for stocks, despite shockingly negative sentiment.  Weekend news was positive.

Please click below to view our Macro Minute (duration: 8:19).

There were several positive developments over the weekend from the White House (China-USA deal and a coming Executive Order cutting drug prices 30% to 80%). These add to a series of incremental macro positives over the past few weeks, which have supported the improving positive risk/reward in stocks. And as we look at the week ahead, we see this further strengthening:

• Over the weekend, two White House developments:
  – White House announced the concept of a trade deal China-USA, a positive
  – coming Executive Order cutting US drug prices 30% to 80% (via truthsocial post).
• The terms of the China deal are not known but polymarket.com shows a 65% probability the tariff rate is below 75%. This is a substantial reduction from the 100%-plus recently and the exemptions is what matters.
• As for drug prices, keep in mind that drugs at 1.35% of the CPI basket. An 80% reduction is a 100bp reduction in CPI. In other words, the YoY CPI would drop from 2.8% to 1.8%, whoa. US pays 3X to 4X what other nations pay and this EO requires the US pay “most favored nation” status, or the lowest available price. Trump noted he believes drug prices would rise elsewhere.
• Equities have staged a V-shaped recovery, which is what we argued would take place as this is the pattern after a waterfall decline in stocks. And despite the continued improving news flow, investors remain skeptical, which is positive.
• In fact, in our conversations, we are surprised to find the high level of skepticism and pessimism. This remains the most reviled recovery in stocks since April lows. The level of measured skepticism remains shockingly high as we highlighted multiple times. The AAII survey, for instance, still shows >50% bears, despite a 20% rise.
• At some point, the macro skeptics will have to acknowledge that conditions are improving. Markets can look through a weak quarter or two due to trade disruptions. And the $7 trillion of cash on the sidelines is a huge amount of firepower.
• As for the week ahead, here is the following to watch:
  – 5/13 Tue 6:00 AM ET: Apr Small Business Optimism Survey    95.0e
  – 5/13 Tue 8:30 AM ET: Apr Core CPI MoM    0.27%e
  – 5/15 Thu 8:30 AM ET: Apr Core PPI MoM    0.28%e
  – 5/15 Thu 8:30 AM ET: Apr Retail Sales    0.1%e
  – 5/15 Thu 8:30 AM ET: May Empire Manufacturing Survey    -8.0e
  – 5/15 Thu 8:30 AM ET: May Philly Fed Business Outlook    -10.5e
  – 5/15 Thu 8:40 AM ET: Powell Speaks on Framework Review
  – 5/15 Thu 10:00 AM ET: May NAHB Housing Market Index    40e
  – 5/16 Fri 10:00 AM ET: May P U. Mich. 1yr Inf Exp   
  – 5/16 Fri 4:00 PM ET: Mar Net TIC Flows
• Bitcoin and Ethereum remain important leading indicators, in our view.
  – Bitcoin is now near all-time highs BTC -1.19%
  – which argues S&P 500 should recover to all-time highs
  – Ethereum ETH 1.06% has surged recently
  – this argues to “washed out” stocks to recover
  – such as MSTR -1.61%  TSLA 6.88%  PLTR -0.96% , etc

BOTTOM LINE: Probabilities favor “V-shaped” recovery

Given the confirmation signals above, we believe the probabilities favor a V-shaped recovery (versus a W-shaped ala 2011). We realize this is counterintuitive given the lack of earnings visibility. But the likely reason is equities collapsed from 2/18 to 4/7, and this waterfall decline reset positioning and sentiment in a way to allow for a V-shaped recovery.

• But ultimately, what really matter is trajectory for 2026
  – new tax plan, 100% expensing of domestic capex
  – de-regulation
  – expanded export demand?
  – tariff rates better than current rate
• we think this is the reason that if tariff deals are soon announced, equities can further recover.

The bull market has proven itself intact. We have identified two lists of “wash out” stocks, both large-cap (22 names) and SMID-cap (27 names). We want to look at stocks which did not make a new low between April 1-April 8, even as the S&P 500 fell to new lows.

The large-cap criteria is as follows:

• Current Market Cap >$15 Billion
• Declined more than 30% before Feb 18th
• Didn’t make new closing low between April 1^st & April 8th
• Current price down more than 25% from 52W High

The large-cap “washed out” tickers are:

WBD 2.87% LULU 8.10% TSLA 6.88% DKNG 4.32% DG -4.01% DLTR 3.81% BF STZ -0.55% RKT 3.20% COIN 6.21% HOOD 3.23% HUM 1.27% UAL 3.75% LDOS -0.28% TEAM 7.13% HUBS 7.17% MSTR -1.61% CRM 3.82% NET 6.28% SMCI 4.41% EIX 0.20% VST 5.99%

The SMID-cap criteria is as follows:

• Current Market Cap <$15 Billion
• Declined more than 30% before Feb 18th
• Didn’t make new closing low between April 1st & April 8th
• Current price down more than 25% from 52W High
• Short interest Day to Cover Ratio >2

The SMID-cap “washed out” tickers are:

DJT 4.20% ROKU 10.70% AS 6.15% LCID 3.61% RIVN 3.35% LKQ 3.87% CROX 7.17% NCLH 6.13% WBA 0.76% CELH -1.52% SOFI 5.54% MKTX -4.37% COLB 6.10% GRAL 1.38% INSP 4.03% PRGO 0.96% CNXC 4.53% DAY 3.09% LUV 1.83% LYFT 0.90% CFLT 5.06% DT 2.72% ESTC 4.41% PCOR 7.33% LITE -1.20% ALAB 8.15% AES 4.41%

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45 SMID Granny Shot Ideas: We performed our quarterly rebalance on 2/18. Full stock list here -> Click here

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Key Incoming Data May:

• 5/1 9:45 AM ET: Apr F S&P Global Manufacturing PMI Tame
• 5/1 10:00 AM ET: Apr ISM Manufacturing PMI Tame
• 5/2 8:30 AM ET: Apr Non-Farm Payrolls Tame
• 5/2 10:00 AM ET: Mar F Durable Goods Orders MoM Tame
• 5/5 9:45 AM ET: Apr F S&P Global Services PMI Tame
• 5/5 10:00 AM ET: Apr ISM Services PMI Tame
• 5/6 8:30 AM ET: Mar Trade Balance Tame
• 5/7 9:00 AM ET: Apr F Manheim Used Vehicle Index Hot
• 5/7 2:00 PM ET: May FOMC Decision Mixed
• 5/8 8:30 AM ET: 1Q P Unit Labor Costs Tame
• 5/8 8:30 AM ET: 1Q P Non-Farm Productivity QoQ Tame
• 5/8 11:00 AM ET: Apr NY Fed 1yr Inf Exp Mixed
• 5/13 6:00 AM ET: Apr Small Business Optimism Survey
• 5/13 8:30 AM ET: Apr Core CPI MoM
• 5/15 8:30 AM ET: May Philly Fed Business Outlook
• 5/15 8:30 AM ET: Apr Core PPI MoM
• 5/15 8:30 AM ET: May Empire Manufacturing Survey
• 5/15 8:30 AM ET: Apr Retail Sales
• 5/15 10:00 AM ET: May NAHB Housing Market Index
• 5/16 10:00 AM ET: May P U. Mich. Sentiment and Inflation Expectation
• 5/16 4:00 PM ET: Mar Net TIC Flows
• 5/19 9:00 AM ET: May M Manheim Used Vehicle Index
• 5/22 8:30 AM ET: Apr Chicago Fed Nat Activity Index
• 5/22 9:45 AM ET: May P S&P Global Services PMI
• 5/22 9:45 AM ET: May P S&P Global Manufacturing PMI
• 5/22 10:00 AM ET: Apr Existing Home Sales
• 5/22 11:00 AM ET: May Kansas City Fed Manufacturing Survey
• 5/23 10:00 AM ET: Apr New Home Sales
• 5/27 8:30 AM ET: Apr P Durable Goods Orders MoM
• 5/27 9:00 AM ET: Mar S&P CoreLogic CS home price
• 5/27 10:00 AM ET: May Conference Board Consumer Confidence
• 5/27 10:30 AM ET: May Dallas Fed Manuf. Activity Survey
• 5/28 10:00 AM ET: May Richmond Fed Manufacturing Survey
• 5/28 2:00 PM ET: May FOMC Meeting Minutes
• 5/29 8:30 AM ET: 1Q S GDP QoQ
• 5/30 8:30 AM ET: Apr Core PCE Deflator MoM
• 5/30 10:00 AM ET: May F U. Mich. Sentiment and Inflation Expectation

Economic Data Performance Tracker 2025:

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