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Richness in the ice cream world is not the same as in financial markets. At 270 basis points (bps), U.S. high yield (HY) credit spreads ended April about as richly valued as it gets. In daily trading history stretching from 1994, the average HY spread was 502 bps; the latest reading scaled to a -1.0 z-score. In the current cycle, the 270-mark portrays little in the way of relative value, standing 19 bps off its January 16th low point.
“Valuations” for financial market metrics are not a standard subject of discussion. Not true for fundamentals. Initial jobless claims are the varsity leading indicator sown into the fabric of Wall Street strategists’ collective psyche. Thursday’s surprise decline to 189,000 says the richness narrative in credit spreads should be far from subsiding. At this level, initial claims took out September 2022’s low of 190,000 with a 26,000 decline, the biggest in 32 weeks. When was the last time initial claims were below the 190,000-line? Answer: 1969.
With claims this rich, the contrarians in us recognize that initial claims are fundamentally overvalued. The technical conclusion suggests there’s asymmetry in the near-term outlook: a move higher is more likely than a move lower for those filing for unemployment. Those already collecting continuing claims cover 25% of unemployment, leaving the other 75% to fend for themselves. Not to mention, the unemployment insurance exhaustion rate, at 39.8%, was a hair off November 2025’s cycle high 40.1%. That prompted Danielle to ask Jonathan: “One in four are collecting and 40% have exhausted in the last 12 months – in a nutshell?” Jonathan’s answer: “Parachute has holes,” as in the jobless benefit parachute.
Another thing that’s porous is the market’s viewpoint going into today’s Institute for Supply Management (ISM) Manufacturing report. The 49.2 headline on the Chicago Purchasing Managers’ Index (PMI) fell back into contraction after three short months above it. That poked holes in the 53.2 consensus estimate and the 52.5 whisper number. From a technical perspective, the 8.5-point two-month pullback through April was in the 5th percentile. Outlier moves of this magnitude have historically prompted average declines in the ISM headline of 2.0 points.
The Chicago PMI points to a stagnant ISM reading. The abruptness of the reversal supports two themes — the restock fade and pull-ahead to payback. Moves in Chicago PMI’s New Orders and Backlogs – and especially the change in the distribution of answers – defied the animal spirits on display in this week’s better-than-expected core capex figures:
- “New Orders fell 6.5 points, back below 50 after three months in expansionary territory. The proportion of respondents reporting fewer orders more than tripled in April.”
- “Orders Backlogs contracted 11.4 points, back in contractionary territory after one month above 50. There was both an increase in the share of respondents reporting smaller backlogs and a decrease in the share reporting larger backlogs.”
The Chicago PMI’s April fade coincided with a material loss of momentum for domestic light truck sales. Pickup trucks are at the top of that leaderboard with nameplates from the Big Three capturing nearly 1 out of every 6 light trucks sold. Yesterday’s latest release of consumer spending statistics yielded today’s third quad chart evidencing a significant loss of momentum over the four quarters ended March 2026. Sequential quarter-over-quarter (QoQ) annualized performance downshifted from a 20.5% gain in 2025’s second quarter to a -0.1% QoQ annualized stall in 2025’s third quarter.
The last two periods’ declines depict front-loaded domestic light truck weakness: 2025’s fourth quarter fell 17.6% and 2026’s first quarter contracted 20.6% (green bars). At -5.9%, the smoother year-over-year (YoY) trend is squarely in negative territory, a level that contrasts with the 2010s expansion (dark blue line). This performance is happening with domestic light truck pricing barely running above the zero line, at 0.3% YoY (orange line). Bottom line: Discounts are forthcoming.
That would help consumer purchasing power which took a hit in the first quarter from the surge in headline inflation. Price matters when applied to the Employment Cost Index’s (ECI) Wages & Salaries. In nominal terms, this gauge registered a 3.1% QoQ annualized gain (green line), splitting the difference between 2025’s third quarter (3.2%) and 2025’s fourth quarter (3.0%). Adjusting for the jump in the PCE price index turned the relative stability in nominal terms into a sharp loss in real wage pressure: the 1.4% QoQ annualized drop was the largest in four years (red line).
On balance, the Chicago PMI’s risk for a step back in the ISM counters the bullish path drawn by the Philadelphia Semiconductor Index and its implications for increasing exposure to cyclicals. The drop in domestic light vehicle sales volumes are much more than a function of March’s Iran War and subsequent higher oil prices. But these factors have amplified depleted real purchasing power, leaving momentum for second-quarter consumer spending at existential risk. That’s rich.