Market Thoughts: Waiting for the great leap forwards

Billy Bragg’s “Waiting for the Great Leap Forwards” popped into my head as I sat down to write this. It seems a song made for the moment. I discovered Bragg in London. He’s a true force of nature, pure energy. He speaks his truth. I respect that.

I saw him open for The Cure in Boston in the mid-1980s. He walked out with an acoustic guitar and (let’s politely say) had “snide remarks” jeered at him as he took the stage. To this day I’ll never understand what—if any—thought went into picking him as the opener, other than riling up the audience.

I went that night to see Billy Bragg. The friend I went with came for The Cure. Two songs into his set, Bragg had the audience hushed. By the end he had them standing, cheering, providing the standing ovation he earned. He hadn’t yet recorded “Waiting for the Great Leap Forwards.”

“A New England” remains, amongst many songs, a personal favorite. Bragg played it that evening. A song about past and present, longing for a different direction. I included it on my Spotify Brexit playlist. I haven’t started a global trade war playlist. Edwin Starr’s “War” would be on it. Bragg should re-record “A New England” swapping in America. Brexit rhymes a lot with what we’re seeing from Washington.

Both ditties are a ‘little cheeky’ to reference, but each resound because of the high hopes and great expectations dashed by Washington’s trade war shenanigans. Aren’t you tired of hearing everyone around you say something to the effect of: OK, but what comes next? What am I supposed to be doing? There’s nothing satisfying for an investor trying to make sense of chaos, let alone self-inflicted pain.

Markets are forward-looking. Investors interpret, then anticipate direction. Occasionally direction comes from pure adrenaline, say in the event of an exogenous shock. Covid, the global financial crisis, a volatility driven flash crash, and Russia’s invasion of Ukraine all come to mind. Ironically, those are ‘easier’ moments for an investor to respond to. They may not feel like it as they’re happening.

In an outsized selloff, what helps markets bounce back are especially inexpensive valuations. Risk assets get to a point where investors are willing to hold their nose and buy simply because markets appear to reflect too steep a discount. It’s called capitulation for a reason. We haven’t seen that happen yet.

This shock is different. It appears driven by an almost willful desire to derail what was a U.S. economy bounding with exuberant strength. I’m not tone deaf to the fact that my observation about that strength is by no means distributed evenly. The bottom of the income and wealth spectrum in the U.S. has been under incredible economic pressure for well over a decade. Something had to give. It did. Here we are.

Markets discount future risk. Investors don’t know how seriously to take what might spiral into a full blown trade war. Or not. It’s why we’ll continue to get the wild swings we’re seeing across markets a while longer. Also, the on-again, off-again correlation between stocks and bonds. Stuck in bardo. Far too many unknowns.

Uncertainty continues to creep into soft data. The Conference Board’s consumer confidence index in April fell to its lowest level since 2020, brought on by covid. Consumer expectations fell to the lowest level since 2011. Fear of stagflation continues to circle the economy.

Hard data is beginning to show signs of wear. First quarter U.S. GDP came in with a negative print of (0.3)% quarter-over-quarter. It was driven by strong imports frontrunning tariffs.

A higher than forecast boost in personal consumption and real personal spending corroborate what’s felt like a “Black Friday” rush to the register, ahead of price increases. Hoarding is feeding the recent rush to buy for consumers and businesses alike.

Those prints came in tandem with a higher than expected quarter-over-quarter print in the Core Personal Consumption Expenditures price index, the Fed’s favored inflation measure. The hard data is beginning to play catch up to what’s been a marked deterioration in consumer confidence, sentiment, expectations and outlook.

As we work our way through earnings season we’re seeing more companies “take the fifth” on the outlook. They’re pulling guidance. They should be. The longer Washington’s tariff taunts drag on, we’ll see a slowdown in hiring, spending, capital expenditure and investment. And the beat goes on.

That said, actual earnings from the likes of big tech and financials continue to validate the strength of the U.S. economy coming into this year. Like hard economic data, they’re backward-looking. The best is yet to come? For now, it’s more than likely behind us.

I can’t remember a time where we’ve been as steadfastly restrained in our risk-taking. Tracking error across portfolios is locked down, beta pulled in, ready, willing and able to quickly deploy capital to dial up risk again. Risk assets remain expensive. There’s a lot of damage being done to animal spirit psyche.

Treading water is never that much fun, but it’s where we find ourselves. That’s worth reflecting on. Waiting for the great leap forwards…

*Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 5/1/25.