How different macro narratives are shaped through the interaction between these three players
A macro view of the real estate market
- Inventory is growing at large and steady rates.
- Construction employment remains unchanged.
Affordability is at historic lows. It’s getting harder to buy a home, which suggests inventory may rise even further.
Timing and projections for the sector
Production forecasts in the housing market already show an upcoming slowdown in construction.
That will hit construction employment directly.
This macro analysis is a simplification, but the conclusions are clear.
Let’s look at how each player is reacting to this unfolding scenario.
Market View
The market prices 6 months ahead.
It reads these charts and infers what’s coming in corporate earnings. It also sends very clear messages through markets—especially the bond market.
The F.E.D.’s View
The Fed has a dual mandate:
• Maximize employment
• Keep inflation below the 2% target
It also oversees all sectors of the economy, each moving at a different pace within the cycle.
It sees the same charts, but doesn’t set policy based on them alone.
The Fed operates on coincident—not leading—indicators.
This puts it at odds with both markets and political pressure.
These are the two main sources where the Fed and the markets collide:
- The wide range of sectors the Fed must account for.
- The lag in the data they use (Fed) to make decisions.
The Political View
One objective: win votes by maximizing activity.
This incentivizes keeping rates low at the expense of inflation, one of the reasons fiat currencies—like the U.S. dollar—have steadily lost purchasing power over time.
What the Markets Are Saying
Bond Market Dialogue: Fed Funds Rate vs. 2-Year Treasury
The interaction between these two rates is a strong leading indicator of future recessions.
The 2-year consistently anticipates Fed moves.
The spread between them is a solid proxy for market uncertainty.
When the 2-year trades below the Fed Funds Rate, the message is loud and clear:
“Cut short-term rates—you’re damaging the economy over the next two years.”
The correlation level (blue line below) shows how misaligned they are.Today, they’re not on the same page. The macro view from the market is not the same as the Fed’s.
Still, the divergence isn’t as extreme as in past cycles.
Stock Market Dialogue
The last three Fed meetings triggered sell-offs without rate cuts.
There are many ways to read this—but beneath it all, the market is asking for the classic Fed Put: “Save us.”
Direct dialogue between the market and the players involved
Political Dialogue
This one’s almost comic.
Trump on X: “Slow Powell”—I want you fired and I’ll change the law to do it.”
It’s political theater, not a realistic threat—but it puts public pressure on the Fed.
And in the end, the Fed members are human. With personal, political, and financial incentives. They’re not immune.
Rate Cut Probability as of April 24, 2025 — for May 7 FOMC Meeting: → 6.8%
The futures market assigns just a 6.8% probability to a rate cut.
This directly clashes with market expectations—and even more so with political interests.
In Summary:
- The Fed, markets, and politicians have disagreed for the last 3 meetings
- The probability of a cut for May 7 meeting is just 6.8% as of April 25
So what should we expect?
Another collision, of course. The market is already anticipating it.
The question is: how much of this conflict is already priced in?
Right now, this issue is buried under headlines about global trade tensions. But sooner or later, reality shows up—through macro data or corporate earnings—and forces a response.
The Message from the Market
Few charts capture the current situation as clearly as this one.
High-yield bonds are weakening fast
Combine that with a slowing economy, high rates, and global uncertainty—and the outlook for these companies is bleak.
And that’s relative to the S&P 500—the top 500 companies in the country.
In other words: if they’re in trouble, junk-rated companies are in deep trouble.
Of course, this opens up trading opportunities in every direction.
This content is exclusive to the Explorer Tier
Trading the final stage of a macro narrative (Stage 4)
Based on what we covered above, the market is sending several clear signals:
- The 2-year yield trading below the Fed Funds rate is a strong call for short-term rate cuts. History tells us this yield always leads the Fed.
- This gives us a clear takeaway: trade the short end of the curve—ideally, in a currency other than the dollar. That message is reflected in this chart:
- The spread between investment grade and junk bonds presents another opportunity, which can be traded through different vehicles.
- If the market starts pricing in a “no rate change” scenario ahead of the May 7 FOMC meeting, that could trigger a correction in the S&P 500— which, as we’ve already discussed, looks overextended.
We’re going to break down these trades technically, using vehicles aligned with our macro + intermarket view—reinforced by technical signals.
When trading ETFs, you’re really trading the underlying asset
This is the chart that everything that follows is based on.
Trade Idea: ProShares UltraShort High Yield (SJB)
SJB: Inverse x1 exposure to High Yield Bonds
This is a macro-driven trade. We’re applying volume-based technical systems because in this type of market, momentum dominates. But momentum only works when it’s fueled by volume. That’s our key indicator right now.
Volume-Based Read
This is an accumulation zone. Why?
Look at the On Balance Volume (OBV)—rising slowly despite low activity.The market is buying, but sellers haven’t stepped in yet.
It’s only when volume spikes and the price swings that we see some selling.Still, not everyone is taking profits.
Note how OBV remains above pre-breakout levels, confirming that buyers are still in control at these price levels.
P.S.:
Thanks for trusting us and subscribing.
You’re already getting access to the full Explorer tier—setups, analysis, and our weekly playbook.
If you’re actively trading, you may want to take it a step further. The Frontliner tier is designed for serious market participants. It includes multiple setups, deeper context, and direct insight into our full workflow.
This week in Frontliner we shared trades to play the short end of the curve, as well as setups focused on small and mid-cap stocks.
These setups are technically driven— because the macro and intermarket foundation is already clear to you.
You can upgrade anytime right here:
View or manage your subscription
Let us know if you have any questions—we’re here.
Thanks for reading,
Martin
Inter Market Flow