Why the Consumer is a Critical Indicator to Watch for Any Economic Downturn

• Current market volatility is likely a 'positioning reset' due to high valuations and earnings expectations, not a 'growth scare' yet.
• Key metrics to monitor for a true growth scare include high-yield spreads (currently contained) and the equal-weight consumer discretionary vs. consumer staples ratio (showing signs of softening).
• The strong consumer spending in 2023 was fueled by a 'K-shaped economy' and the wealth effect from robust housing and stock markets, despite lagging jobs data.
• The software sector is experiencing 'software soreness' with continued selling pressure, indicating crowded positions and short-term trading opportunities rather than long-term conviction.

Cameron Dawson, CIO of New Edge Wealth, views current market volatility as a 'positioning reset' rather than a 'true growth scare', citing contained high-yield spreads. However, she highlights concerns about a softening consumer discretionary-to-staples ratio and persistent selling pressure in the software sector, which could signal future economic shifts.