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DC Lite #467
"Contrary to widespread fears about the economic outlook, key credit indicators are turning more bullish"
Daily Chartbook
October 20, 2025
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1. Credit indicators. "Contrary to widespread fears about the economic outlook, key credit indicators are turning more bullish. Default rates for high yield debt and loans have peaked, along with delinquency rates for auto loans and credit cards."
2. Equity positioning (I). "Systematic strategies have rolled back exposure after months of buildup to a mild overweight, while discretionary investors, still risk-averse, have moved decisively underweight—a setup that, paradoxically, tilts bullish."
3. Equity positioning (II). "Discretionary investors are now positioned for negative earnings growth in Q3, even as it looks to be on track to pick up to the low double digits, in line with our forecast of 16.4%."
4. Offense vs. Defense. "With the minor pullback in equities, a big shift has unfolded in the breadth data of offense and defense sectors … There’s now a lot more defensive stocks that are above their 50-day MA than offensive stocks. In fact, it’s fallen to a level that’s been followed by short-term pullbacks in SPX reversing higher."
5. XMOMO. "Our tactical indicator for S&P 500 has dropped to 0%, third week of negative reading. The drop is about re-pricing of the credit risk ... History shows when XMOMO is at 0%, it doesn’t stay here and starts improving with outright positive signal majority of time within 4-weeks. i.e. market buys some risk somewhere across the asset curve."
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