Major U.S. stock indexes have fallen roughly 2% over the past week in what Raymond James calls an "orderly sell-off," with the firm noting there is "little sign of capitulation yet." The advisory group points to dynamics outside equities - most notably in credit and oil markets - as the decisive elements that would mark a more definitive market breakdown.
Analyst Tavis McCourt observed that, since the war began, energy and utilities have been the relative winners, while more cyclical sectors have shouldered much of the downside amid rising Treasury yields and a general risk-off posture among investors. That sectoral performance, Raymond James says, reflects the interplay between rate moves, commodity prices and investor risk appetite.
The firm emphasized that the trigger for a true capitulation is likely to originate in the bond market rather than in stocks themselves. As McCourt put it, "the equity market will follow the credit market, which will follow the oil market's lead." He noted that credit spreads have only widened modestly so far and remain considerably tighter than during prior stress episodes - citing the yen carry trade unwind and the Russia-Ukraine shock as reference points.
On spreads specifically, Raymond James argued they are "not even in the same zip code as being consistent with meaningful recession chance in the U.S." That assessment signals the firm views current credit conditions as insufficiently stressed to presage a sustained equity capitulation.
McCourt also cautioned that the bond market can misread the initial implications of exogenous shocks. He wrote that initial bond moves since COVID have "almost always been 180 degrees wrong," pointing to the Russia-Ukraine episode when 10-year Treasury yields initially fell by 23 basis points only to rise by as much as 300 basis points later in 2022. By the same token, the recent 27-basis-point rise in the 10-year yield could turn out to be premature.
Beyond market mechanics, the firm noted signs of underlying cyclical resilience. McCourt said the cyclical economy is "clearly improving," flagging accelerating durable goods orders and continued consumer spending as supporting data points.
Despite those improvements, Raymond James argued that two conditions must change materially before investors should expect an equity capitulation: stabilisation of activity in the Strait of Hormuz and a more pronounced widening in credit spreads. Until credit markets and oil show those clearer signals, the firm suggested, a full capitulation in equities remains unlikely.
Summary: Raymond James describes recent equity weakness as orderly and not yet indicative of capitulation. The firm places primary importance on developments in the credit market and oil prices, noting current credit spreads are modestly wider but still much tighter than in prior stress periods. Historical bond market behavior in recent shocks has often reversed, and the firm highlights signs of cyclical improvement in the economy. Until the Strait of Hormuz stabilises and credit spreads widen meaningfully, Raymond James does not expect a full capitulation in stocks.