It feels bad, doesn’t it? Even though the market slipped only a little this past week, the bears are rejoicing like it was 1999. The first five months of this year have been one of those rare market moments that harken back to the mid-90s, when equities relentlessly rallied. Now comes a little cold water.

Since May 3, at one point the S&P 500 was down about ~5%, or ~125 points, the deepest such pullback since the awful days of December. Naturally, investors are asking themselves has this pullback done sufficient damage to signal a major top?

I’m of the opinion that May 3’s level of 2945 isn’t the high for the year, as stocks seem to have pulled back more severely than investment grade and high-yield bonds. To me, the fact that credit activity is more muted suggests the trade tensions/tariffs are having transitory impacts. More specifically, risk off has raised equity premia but not severely raised the risk of default.

This can be seen quite clearly within the investment grade credit default swaps arena. Technology, industrial and financial stocks have been among the hardest hit, thanks, in part, to exposure to the China-U.S. trade and tariff tiff, but corresponding credits are not reacting as badly.

Nevertheless, deeper technical damage has been done to m...

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