The Monday Morning Playbook: Week of May 5, 2025

Happy Cinco de Mayo!

The pain trade is higher.

Three weeks ago, despite the tariff about-face and 9% daily gain, I firmly believed that a retest of the April 7 lows was the most likely scenario. We walked through historic examples of new low data the week prior to show why this was the case.

However, last week’s report showed a number of reasons why the odds of a retest were declining, including strong breadth, improvement in growth stocks, the unwind of the gold trade, the VIX un-inversion, and more.

And today, those odds look to be even closer to zero and based on what we’ve seen, the base case has to be that the index lows are in.

I realize that might be a frustratingly late call after a 14% rally from the April 8 closing lows but we have a process, we stuck to it, and we’re going to respect the call.

As John Maynard Keynes once said, “When the facts change, I change my mind. What do you do, sir?”

I’m not going to dig my heels in and poo-poo a rally that has done everything right. I have no recently downgraded S&P 500 target to defend, and the ETF models have performed well, despite still holding a defensive tilt amid the historic monthly rebound.

Now, the bottom being in, does not necessarily mean it’s a great tactical place to buy equities, but we’re not going to hold cash or be overweight defensives hoping for a pullback that may never come.

This week’s report will review:

• Why strong breadth and still-bearish sentiment bode well for equities

• Mag 7 earnings reactions and technology sector technicals

• April in review

• Oil, rates, and the dollar

• and more!