Lead
This week was a rorschach test. The bears looked at March CPI at 3.2% and saw "no cuts." The bulls looked at the bond market's response — yields down, dollar down, gold up — and saw "the Fed has decided." Both can't be right. By Friday's close, price action had voted: small caps led, REITs led, the dollar broke its 200-day. That is the regime where the cuts come.
The five charts that matter
- 2y/10y yields: Steepening from -32bps to -18bps on the week. Bull-steepening (front-end falling faster than the back) is the cleanest "Fed is done" signal you can buy.
- DXY breaking down: First close below the 200-day MA since November. Watch the 102.50 retest.
- IWM/SPY ratio: Small-cap relative strength has been broken for three years. It put in its first higher-high since 2023 this week. Don't chase it, but don't ignore it.
- REIT breadth: 73% of REITs above their 50-day MA, the highest since the March 2024 rally. Falling rates flow there first.
- VIX term structure: 1m/3m back in normal contango after a brief inversion. The market is no longer paying up for near-term hedges.
What we're watching next week
PCE on Friday is the single event that matters. Anything in-line or cooler validates the bond market's call and likely extends the rotation into rate-sensitive names. A second hot print and we're back to "higher for longer," with all the sector implications that flips.
The decision we'd make
This isn't a week to make a big bet. It's a week to make sure your book reflects the regime change if PCE confirms. That means: net long duration, overweight rate-sensitive equity (small caps, REITs, regional banks), underweight the dollar, neutral energy. If PCE prints hot, you flip back. The optionality is cheap; the conviction shouldn't be.
Last week's call, graded
We said the post-CPI dip in long-duration tech was a buy. QQQ closed the week up 1.4% from Wednesday's intraday low. That's a decent grade, not a victory lap.